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 July 31 , 1996
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 0-20848
UNIVERSAL HEIGHTS, INC.
(Name of small business issuer in its charter)
Delaware 65-0231984
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19589 N.E. 10th Avenue
Miami, Florida 33179
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (305) 653-4274
Indicate by check mark whether the Company (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 Company was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Number of shares of the Common Stock of Universal Heights,
Inc. issued and outstanding as of August 31, 1996: 2,942,072
UNIVERSAL HEIGHTS, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The following unaudited, condensed consolidated financial
statements of the Company have been prepared in accordance with
the instructions to Form 10-QSB and, therefore, omit or condense
certain footnotes and other information normally included in
financial statements prepared in accordance with generally
accepted accounting principles. In the opinion of management,
all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial information
for the interim periods reported have been made. Results of
operations for the three months ended July 31, 1996 are not
necessarily indicative of the results for the year ending April
30, 1997.
UNIVERSAL HEIGHTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, April 27,
1996 1996
----------- ---------
(Unaudited)
ASSETS:
Current assets-
Cash and cash equivalents $ 99,226 $ 30,337
Accounts receivable, net 15,568 44,902
Inventories 809,563 804,654
Other current assets 189,963 226,355
--------- ---------
Total current assets 1,114,320 1,106,248
Property and equipment, net 93,013 104,997
Patents and trademarks, net 699,423 717,341
Inventories-non-current 439,595 439,595
Other assets 9,816 9,816
--------- ---------
$ 2,356,167 $ 2,377,997
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities-
Accounts payable $ 826,488 $ 952,662
Accrued expenses 147,944 192,152
Due to related parties 266,019 232,325
Current portion of capitalized
lease obligations 12,204 12,579
--------- ---------
Total current liabilities 1,252,655 1,389,718
--------- ---------
Capitalized lease obligations 12,243 15,344
Long-term debt-due to
related parties - 462,500
Stockholders' equity-
Preferred stock, $.01 par
value; 1,000,000 shares
authorized; 49,950 shares
issued and outstanding 500 500
Common stock, $.01 par value;
20,000,000 shares authorized;
2,942,072 and 1,598,882 shares
issued and outstanding as of
July 31, 1996 and
April 27, 1996, respectively 29,421 15,988
Additional paid-in capital 6,993,968 6,222,651
Accumulated deficit (5,932,620) (5,728,704)
--------- ---------
Total stockholders' equity 1,091,269 510,435
--------- ---------
$ 2,356,167 $ 2,377,997
========= =========
See notes to condensed consolidated financial statements
UNIVERSAL HEIGHTS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended July 31,
1996 1995
------ ------
NET SALES $ 62,947 $ 57,981
COST OF GOODS SOLD 29,945 37,631
------ ------
Gross profit 33,002 20,350
------ ------
OPERATING EXPENSES:
Selling and distribution 20,047 42,162
General and administrative 180,087 165,366
Design and development 19,880 36,600
Royalty and license 14,253 26,457
------- -------
Total operating expenses 234,267 270,585
------- -------
Loss from operations (201,265) (250,235)
------- -------
OTHER INCOME (EXPENSE):
Interest income - 79
Interest expense (2,651) (7,025)
------- -------
(2,651) (6,946)
------- -------
Net loss $(203,916) $(257,181)
======= =======
NET LOSS PER COMMON SHARE $ (.07) $ (.28)
======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,740,000 914,000
========= =======
See notes to condensed consolidated financial statements
UNIVERSAL HEIGHTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended July 31,
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(203,916) $(257,181)
Adjustments to reconcile net loss
to net cash used for operating
activities-
Depreciation and amortization 26,760 62,712
Provision for inventory obsolescence - 8,317
Changes in assets and liabilities-
(Increase) decrease in:
Accounts receivable 29,334 3,013
Inventories (4,909) 6,439
Other current assets 36,392 (2,542)
Other assets - (7,604)
Increase (decrease) in:
Accounts payable and
accrued expenses (66,882) (20,349)
------ ------
Net cash used for operating
activities (183,221) (207,195)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment,net 3,318 (5,017)
Acquisition of patents and trademarks (176) (2,294)
------ ------
Net cash used for investing
activities 3,142 (7,311)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
line of credit - (16,000)
Issuance of common stock
and warrants 218,750 -
Advances from stockholders 33,694 264,343
Payment on capital lease obligations (3,476) (3,490)
------- -------
Net cash provided by
financing activities 248,968 244,853
------- -------
(Continued)
UNIVERSAL HEIGHTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Three Months Ended July 31,
1996 1995
------ ------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 68,889 30,347
CASH AND CASH EQUIVALENTS,
beginning of period 30,337 102,567
------ ------
CASH AND CASH EQUIVALENTS,
end of period $ 99,226 $ 132,914
------ ------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the
period $ 509 $ 3,774
------- -------
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING AND FINANCING ACTIVITIES:
Common stock issued in
exchange for debt $ 566,000 $ 173,811
------- -------
See notes to condensed consolidated financial statements
UNIVERSAL HEIGHTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES:
Except as disclosed below, the accounting policies followed
for quarterly financial reporting are the same as those disclosed
in Note (1) of the Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended April 27, 1996.
As of April 28, 1996, the Company changed its accounting
fiscal year from a conventional 52/53 week fiscal year ending on
the Saturday closest to April 30 to a calendar year ending on
April 30.
(2) SALE OF COMMON STOCK AND WARRANTS:
In July 1996, a group of investors purchased warrants from
the Company at $.05 per warrant entitling the holders to purchase
1,433,333 shares of the Company's Common Stock at $.70 per share.
The warrants are exercisable for six months. During July,
warrants to purchase 254,760 shares were exercised. As a result
of these transactions, the Company received gross proceeds of
$250,000. There is no assurance that the remaining warrants will
be exercised or additional financing will be available on
commercially reasonable terms or at all.
UNIVERSAL HEIGHTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Prior to January 31, 1993, the Company was primarily engaged
in organizational activities, including without limitation the
establishment of office facilities, identifying and obtaining
relationships with suppliers and production facilities,
researching and developing the general design and packaging of
its products and negotiating developmental license agreements.
The Company's expenses during the development stage period
consisted primarily of salaries of officers and employees and
other administrative costs, research, design and development
costs, initial payments under royalty and license agreements,
costs incurred in the production, storage and shipping of
inventory and financing costs. Effective February 1, 1993, the
Company was no longer a development stage company but has
continued to incur losses since that date. The Company
anticipates that it will incur losses, until at the earliest, it
generates sales which cover its cost of sales and variable and
fixed operating expenses. The Company cannot reasonably estimate
the length of time before it generates income, if ever.
The Company's primary demands for cash include payments to
obtain inventory, payments to obtain licenses and royalty
payments. To fund such demands, historically the Company has
generated funds from sales of its products and from outside
sources through the sale of its debt and equity securities.
Over the past two years, the Company's sales have declined
as a result primarily of labor problems experienced by Major
League Baseball(MLB), the National Hockey League(NHL) and the
National Basketball Association(NBA). Such problems included
substantial strikes by both MLB and the NHL and a threatened
strike by the NBA. Although no assurances can be given, the
Company, however, believes that the market for sports licensed
products is improving and will continue to improve as a result of
such strikes being settled. The Company estimates that for the
twelve months period following the date hereof, it will need to
generate revenues of approximately $2,800,000 in order to
generate positive cash flow. In order to achieve the required
$2,800,000 of sales, the Company developed a two-part plan,
involving growth both internally and by acquisitions. By
continuing to market its historic product line and attempting to
expand sales of such product line by expanding its current
marketing efforts to other retailers and attempting to obtain
additional licensed products, the Company believes it can
increase its sales internally.
The Company has also made two acquisitions that it believes
will increase its sales. In October 1995, the Company acquired
the assets of a entity, which the Company believes adds a solid
complementary product line to its current products. The Company
will now have licensed pens to sell along with its lines of
notepads and sportscubes. The Company believes that this
combination should lead to increased sales as a result of
complementary distribution channels.
In August 1995, the Company also acquired certain inventory
and the rights to market weighted gloves, particularly for
aerobics, baseball and golf. The Company believes that this
product line should also result in increased sales volume. The
Company currently has sufficient inventory of the weighted
baseball gloves. The Company will need to obtain funds, however,
to market such products and to obtain inventory for the weighted
golf and aerobic gloves, which the Company plans to market during
fiscal 1997.
The Company, as of June 1996, has signed Hale Irwin, three-
time winner of the PGA's US Open to a three year consulting and
endorsement contract for the Company's weighted golf glove.
The Company will attempt to obtain funds from internal cash
flow and the raising of additional working capital. Although no
assurances can be given whether it can obtain such funds or the
terms thereof. Failure to obtain such funds would have a material
adverse affect on the Company. The Company is also working
closely with its vendors on a payment plan for its accounts
payable. The Company will attempt to reduce its payables,
including payments owed pursuant to various license agreements
as cash flow is generated as a result of an improved licensed
product marketplace, a larger and stronger licensed product base,
and the sales of the Company's proprietary line of weighted
gloves for baseball and golf.
In July 1996, a group of investors purchased warrants at
$.05 per warrant from the Company entitling the holders to
purchase 1,433,333 shares of the Company's Common Stock at $.70 a
share. The warrants are exercisable for six months. During July,
warrants to purchase 254,760 shares were exercised. As a result
of these transactions the Company received gross proceeds of
approximately $250,000. There can be no assurance that any
additional warrants will be exercised.
Results of Operations - Three Months Ended July 31, 1996 versus
July 29, 1995
Net sales for the three months ended July 31, 1996 were
$62,947, as compared with $57,981 for the three months ended July
29, 1995.
Cost of sales for the three months ended July 31, 1996 were
$29,945 as compared with $37,631 for the three months ended July
29, 1995. Cost of sales as a percentage of net sales decreased
from approximately 65% to approximately 48%, primarily as a
result of a change in the product mix sold.
Selling and distribution expenses for the three months ended
July 31, 1996 were $20,047 as compared with $42,162 for the three
months ended July 29, 1995. Selling and distribution expenses
include, among other things, sales commissions, certain display
costs, and net shipping expenses which are a function of the
volume of net sales. The overall dollar decrease in selling and
distribution expenses is primarily attributable to a reduction in
discretionary selling expenses.
Design and development expenses for the three months ended
July 31, 1996 were $19,800 as compared with $36,600 for the three
months ended July 29, 1995. Design and development expenses have
decreased since the majority of the design work required to
produce product for the major sports leagues and colleges has
been completed.
Royalty and license expenses for the three months ended July
31, 1996 were $14,253 as compared with $26,457 for the three
months ended July 29, 1995. The Company expenses royalties in the
period in which the related sales are generated. Additional
amounts to satisfy required minimum guaranteed royalties are
expensed over the term of the particular license agreements, and,
therefore, do not necessarily fluctuate with sales for the
period.
Seasonality
Sales of the Company's products are correlated with the
visibility of the various proprietary marks and their owners.
For example, football souvenirs sell prior to and during the
football season and inventory must be developed prior to that.
Based on its limited operating history, the Company believes that
its sales levels will peak between late summer and the end of
Christmas season, the strongest retail season. To ensure timely
shipment, the Company holds substantial amounts of inventory
during periods of low sales activity. The capital necessary to
hold such inventory may restrict the funds available for other
corporate purposes.
Financial Condition
Cash and cash equivalents at July 31, 1996 were $99,226 as
compared with $30,337 at April 29, 1996, an increase of $68,889.
The increase is primarily the result of $183,221 being used for
operating activities offset by $248,968 of financing activities,
consisting primarily of advances from related parties and
proceeds received from the sale of warrants and issuance of
common stock.
Due to related parties at July 31, 1996 was $266,019 as
compared to $694,825 at April 29, 1996, a decrease of $428,806.
During the three months ended July 31, 1996, $462,500 of due to
related parties was converted into 1,016,763 shares of Common
Stock.
In July 1996, a group of investors purchased warrants from
the Company at $.05 per warrant entitling the holders to purchase
1,433,333 shares of the Company's Common Stock at $.70 per share.
The warrants are exercisable for six months. During July,
warrants to purchase 254,760 shares were exercised. As a result
of these transactions, the Company received gross proceeds of
$250,000. There is no assurance that the remaining warrants will
be exercised or additional financing will be available on
commercially reasonable terms or at all.
At the Company's present level of sales, the Company does
not have and is not generating sufficient funds from operations
or otherwise to finance its proposed plan of operations for the
next twelve months. To finance its operations, the Company hopes
to generate sufficient sales as a result of both internal growth
and the acquisitions in order to cover its variable and fixed
operating costs through at least the year ending April 30, 1997.
However, there can be no assurance that the Company will be able
to increase its sales quickly enough, or ever, to a level that
generates a positive cash flow. Moreover, if the Company can not
generate sufficient funds to cover its fixed and variable costs
through such period, as a result of among other things,
unanticipated expenses, problems or difficulties, the Company
could be required to seek alternative sources of capital or have
to curtail or cease its operations. The Company may attempt to
raise such funds from private and public sources. The Company may
raise funds through additional equity financing, debt financing
or some form of collaborative arrangement. Excluding related
party loans and the potential exercise of the warrants
exercisable through January 1997, the Company has not identified
or secured additional sources of financing. There is no assurance
that any such financing will be available on commercially
reasonable terms or at all. The Company's inability to obtain
future financing on terms acceptable to the Company would have a
material adverse affect on the Company's operations.
UNIVERSAL HEIGHTS, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
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
None.
SIGNATURES
Pursuant to the requirements 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.
UNIVERSAL HEIGHTS, INC.
/s/ Bradley I. Meier
---------------------------
BRADLEY I. MEIER, President
DATE: September 13, 1996
------------------
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<PERIOD-END> JUL-31-1996
<CASH> 99,226
<SECURITIES> 0
<RECEIVABLES> 45,768
<ALLOWANCES> (30,200)
<INVENTORY> 809,563
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<PP&E> 392,885
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500
<COMMON> 29,421
<OTHER-SE> 1,061,348
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<SALES> 62,947
<TOTAL-REVENUES> 62,947
<CGS> 29,945
<TOTAL-COSTS> 29,945
<OTHER-EXPENSES> 234,267
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,651
<INCOME-PRETAX> (203,916)
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<INCOME-CONTINUING> (203,916)
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