1
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 October 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 December 6, 1996: 3,218,923
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 six months ended October 31, 1996 are not
necessarily indicative of the results for the year ending April
30, 1997.
UNIVERSAL HEIGHTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, April 27,
1996 1996
----------- ---------
(Unaudited)
ASSETS:
Current assets-
Cash and cash equivalents $ 1,031 $ 30,337
Accounts receivable, net 26,670 44,902
Inventories 825,809 804,654
Other current assets 296,937 226,355
--------- ----------
Total current assets 1,150,447 1,106,248
Property and equipment, net 89,959 104,997
Patents and trademarks, net 669,161 717,341
Inventories-non-current 439,595 439,595
Other assets 9,816 9,816
--------- ---------
$ 2,358,978 $ 2,377,997
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities-
Accounts payable $ 824,315 $ 952,662
Accrued expenses 230,293 192,152
Due to related parties 268,812 232,325
Current portion of capitalized
lease obligations 12,184 12,579
Total current liabilities 1,335,604 1,389,718
Capitalized lease obligations 9,019 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;
3,218,923 and 1,598,882 shares
issued and outstanding as of
October 31, 1996 and
April 27, 1996, respectively 32,189 15,988
Additional paid-in capital 7,158,298 6,222,651
Accumulated deficit (6,176,632) (5,728,704)
----------- ---------
Total stockholders' equity 1,014,355 510,435
----------- ---------
$ 2,358,978 $ 2,377,997
=========== =========
See notes to condensed consolidated financial statements
UNIVERSAL HEIGHTS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
Oct. 31, Oct. 28, Oct. 31, Oct. 28,
1996 1995 1996 1995
---------- ---------- ---------- ---------
NET SALES $ 121,956 $ 156,152 $ 59,009 $ 98,171
COST OF GOODS SOLD 51,274 104,742 21,329 67,111
---------- ---------- --------- ---------
Gross profit 70,682 51,410 37,680 31,060
---------- ---------- --------- ---------
OPERATING EXPENSES:
Selling and distribution 43,789 82,319 23,742 40,157
General and admin. 410,466 375,711 230,379 210,345
Design and development 39,271 82,773 19,391 46,173
Royalty and license 20,279 34,662 6,026 8,205
---------- ---------- ---------- ----------
Total operating expenses 513,805 575,465 279,538 304,880
---------- ---------- ---------- ----------
Loss from operations (443,123) (524,055) (241,858) (273,820)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income 1,296 135 1,296 56
Interest expense (6,101) (16,896) (3,450) (9,871)
---------- --------- --------- ----------
(4,805) (16,761) (2,154) (9,815)
Net loss $(447,928) $(540,816) $(244,012) $(283,635)
========== ========== ========== ==========
NET LOSS PER COMMON SHARE $ (0.16) $ (.49) $ (0.08) $ (0.22)
========== ========== ========== ==========
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 2,843,000 1,096,000 2,945,000 1,276,000
=========== ========= ========= =========
See notes to condensed consolidated financial statements
UNIVERSAL HEIGHTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended October 31,
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(447,928) $(540,816)
Adjustments to reconcile net loss to net
cash used for operating activities-
Depreciation and amortization 58,219 101,848
Provision for doubtful accounts (14,781) -
Provision for inventory obsolescence - 23,318
Changes in assets and liabilities-
(Increase) decrease in:
Accounts receivable 33,013 19,196
Inventories (21,155) 96,341
Other current assets (70,584) 6,320
Other asset - (9,106)
Increase (decrease) in:
Accounts payable and accrued expenses 13,293 77,587
-------- --------
Net cash used for operating activities (449,923) (225,312)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (7,647) 19,947
Purchase of business, net - (170,244)
Acquisition of patents and trademarks 12,647 (69,353)
-------- --------
Net cash used for investing activities 5,000 (219,650)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
line of credit - (24,000)
Issuance of common stock and warrants 320,000 -
Advances from stockholders 102,337 411,089
Payment on capital lease obligations (6,720) (7,125)
-------- --------
Net cash provided by financing activities 415,617 379,964
-------- --------
(Continued)
UNIVERSAL HEIGHTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Six Months Ended October 31,
1996 1995
--------- ---------
NET INCREASE IN CASH
AND CASH EQUIVALENTS (29,306) (64,998)
CASH AND CASH EQUIVALENTS,
beginning of period 30,337 102,567
--------- ---------
CASH AND CASH EQUIVALENTS,
end of period $ 1,031 $ 37,569
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 1,030 $ 7,043
======== =========
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING AND FINANCING ACTIVITIES:
Common stock issued in exchange
for debt $ 631,850 $ 548,897
======== ========
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.
(3) CONVERSION OF DEBT TO COMMON STOCK:
- ---------------------------------------
As of December 3, 1996 an additional $65,850 of related
party debt was converted into 175,600 shares of common stock and
131,700 warrants to purchase common stock at an exercise price
of $.75. This transaction is reflected in the accompany condensed
consolidated balance sheet as of October 31, 1996.
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.
In November 1996, the Company signed a letter of intent to
purchase a women's fashion shoe Company whose products are
targeted to the trendy 15-35 year old. The Company's entrance
into the trendy fashion footwear market complements the recent
changes announced by the Company e.g. the formation of an active
sports division which includes aerobic type products targeted to
the same market.
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 - Six Months Ended October 31, 1996 versus
October 28, 1995
Net sales for the six months ended October 31, 1996 were
$121,956, as compared with $156,152 for the six months ended
October 28, 1995.
Cost of sales for the six months ended October 31, 1996 were
$51,274 as compared with $104,742 for the six months ended
October 28, 1995. Cost of sales as a percentage of net sales
decreased from approximately 67% to approximately 42%, primarily
as a result of a change in the product mix sold.
Selling and distribution expenses for the six months ended
October 31, 1996 were $43,789 as compared with $82,319 for the
six months ended October 28, 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.
General and administrative expenses for the six months ended
October 31, 1996 were $410,466, as compared with $375,711 for the
six months ended October 28, 1995. General and administrative
expenses have increased due to the commitments made through the
1995 acquisitions.
Design and development expenses for the six months ended
October 31, 1996 were $39,271 as compared with $82,773 for the
six months ended October 28, 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 six months ended
October 31, 1996 were $20,279 as compared with $34,662 for the
six months ended October 28, 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.
Results of Operations - Three Months Ended October 31, 1996
versus October 28, 1995
Net sales for the three months ended October 31, 1996 were
$59,009, as compared with $98,171 for the three months ended
October 28, 1995.
Cost of sales for the three months ended October 31, 1996
were $21,329 as compared with $67,111 for the three months ended
October 28, 1995. Cost of sales as a percentage of net sales
decreased from approximately 68% to approximately 36%, primarily
as a result of a change in the product mix sold.
Selling and distribution expenses for the three months ended
October 31, 1996 were $23,742 as compared with $40,157 for the
three months ended October 28, 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.
General and administrative expenses for the three months
ended October 31, 1996 were $230,379, as compared with $210,345
for the three months ended October 28, 1995. General and
administrative expenses have increased due to the commitments
made through the 1995 acquisitions.
Design and development expenses for the three months ended
October 31, 1996 were $19,391 as compared with $46,173 for the
three months ended October 28, 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
October 31, 1996 were $6,026 as compared with $8,205 for the
three months ended October 28, 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. 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 October 31, 1996 were $1,031 as
compared with $30,337 at April 29, 1996, a decrease of $29,306.
The decrease is primarily the result of $449,923 being used for
operating activities offset by $415,617 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 October 31, 1996 was $268,812 as
compared to $694,825 at April 29, 1996, a decrease of $426,013.
During the six months ended October 31, 1996, $528,350 of due to
related parties was converted into 1,192,363 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: December 12, 1996
--------------------
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> APR-30-1997 APR-30-1997
<PERIOD-END> OCT-31-1996 OCT-31-1996
<CASH> 1,031 1,031
<SECURITIES> 0 0
<RECEIVABLES> 42,088 42,088
<ALLOWANCES> (15,418) (15,418)
<INVENTORY> 825,809 825,809
<CURRENT-ASSETS> 1,150,447 1,150,447
<PP&E> 400,097 400,097
<DEPRECIATION> (310,138) (310,138)
<TOTAL-ASSETS> 2,358,978 2,358,978
<CURRENT-LIABILITIES> 1,335,604 1,335,604
<BONDS> 0 0
0 0
500 500
<COMMON> 32,189 32,189
<OTHER-SE> 981,666 981,666
<TOTAL-LIABILITY-AND-EQUITY> 2,358,978 2,358,978
<SALES> 121,956 59,009
<TOTAL-REVENUES> 121,956 59,009
<CGS> 51,274 21,329
<TOTAL-COSTS> 51,274 21,329
<OTHER-EXPENSES> 513,805 279,538
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,101 3,450
<INCOME-PRETAX> (447,928) (244,012)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (447,928) (244,012)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (447,928) (244,012)
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