U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended April 27, 1996
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
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value NASDAQ
Redeemable Common Stock Purchase Warrants NASDAQ
(Title of each class) (Name of exchange where
registered)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days: YES X
NO _
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-K is not contained in this
form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part IlI of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuers revenues for its most recent fiscal year:
$359,712
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such
stock, as of July 15, 1996: $1,653,320
State the number of shares of Common Stock of Universal
Heights, Inc. issued and outstanding as of July 15, 1996:
2,927,073
Transitional Small Business Disclosure Format: YES NO X
PART I
Item 1. Description of Business
The Company
Universal Heights, Inc. (the "Company") designs, markets,
distributes and sells high-quality licensed novelty and souvenir
products under the trade name SuperSouvenirs(trademark), which
includes Superpennants(registered trademark),
SuperSilhouettes(trademark), and pens. Superpennants(registered
trademark) are screen printed pennants on flexible polymer film
displaying sports team logos and cartoon characters.
SuperSilhouettes(trademark) are screen printed images of cartoon
characters on die cut, flexible polymer film.
The Company is party to non-exclusive license agreements
with the licensing arm of the National Football League ("NFL") ,
National Basketball Association ("NBA") and Major League Baseball
("MLB"). The Company also has entered into license agreements
with colleges and universities and with Marvel Entertainment Co.
for certain of its comic book characters (including Spiderman,
Captain America and Wolverine). These agreements allow the
Company to print league and member team colors, symbols, mascots
and logos, as well as athlete and character images ("Proprietary
Marks") on SuperSouvenirs(trademark). Currently, the NBA, MLB,
and the college and universities licenses are limited to
Superpennants(registered trademark). The Company's license rights
are limited primarily to the United States. The Company is
currently in the process of renewing its licenses with MLB and
NBA licenses.
Superpennants(registered trademark) and
SuperSilhouettes(trademark) are made from a soft, high gloss
polymer film which can be produced in many colors using a
computerized color matching process on which graphic designs are
screen-printed, which results in a precise match of the color
scheme of the applicable Proprietary Marks. The Company presently
employs an in-house commercial artist to develop graphic designs
for the SuperSouvenirs(trademark).
In August 1995, the Company acquired a private company engaged
in the sale of patented, weighted athletic gloves (the "Patented
Product") used for a variety of sports including a golf glove and
a baseball batting glove, in exchange for approximately 115,000
shares. In addition, the Company entered into three-year, $40,000
per year employment agreements with two of the prior owners of
the acquired company. Pursuant to the employment agreement, each
of the two prior owners received 8,333 shares of common stock
equating to a $25,000 signing bonus and each received options to
purchase 21,500 shares of common stock. These options expire on
June 4, 2005. The Company also issued an additional 9,000 shares
and 37,500 unregistered shares of common stock, to cover
professional fees relating to the acquisition, received an
assignment of the patent, issued an additional 69,999 stock
options to purchase common stock and signed a royalty agreement
with the previous owners. This acquisition was recorded under the
purchase method of accounting and, accordingly, the Company's
operations for the period subsequent to the acquisition is
included in the accompanying consolidated financial statement.
The following pro forma results are unaudited and were prepared
under the assumption that the transaction was effective at May 1,
1994.
April 27, April 29,
1996 1995
---------- ----------
Net Sales $ 420,385 $1,080,580
Net Loss $1,641,800 $1,439,830
Net Loss
per Common Share ($1.24) ($1.48)
In October 1995, the Company acquired substantially all of
the assets of another private company engaged in the sale of pens
with miniature football helmets and baseball caps attached to the
top of the pen featuring the names and emblems of professional
football and baseball teams. Under the terms of such
transaction, in exchange for certain assets of such company,
including inventory and patents relating to the products (the
"Products"), the Company (i) issued to the private company 60,000
shares of its Common Stock, (ii) paid (a) $37,588 on closing and
(b) will pay royalties of 10% on the first $3 million of net
sales, as defined, will pay royalties of 5% on the next $2
million in net sales, as defined, and will pay a royalty of 2%
for the next four years, (iii) entered into a three-year
consulting agreement with the principal of the company at an
annual fee of $50,000 plus a guaranteed bonus of $15,000, payable
in cash or stock at the Company's option and (iv) in connection
with the consulting agreement, granted options to the principal
of such company to purchase an aggregate of 55,000 shares of the
Company's Common Stock at the NASDAQ closing bid price of the
stock on the closing date of such acquisition as to 30,000 shares
and at the closing bid price on the date one year from the
closing date as to the remaining 25,000 shares terminating ten
years from the vest date. The Company also issued 30,000
unregistered shares of common stock to cover professional fees
relating to the acquisition.
In June 1996, the Company 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's products are distributed by sales
representatives to department stores, sporting goods stores, mass
merchants, discount retailers, athletic and other specialty
stores, concessionaires, gift stores, and other retailers
throughout the United States.
The Company was incorporated under the laws of the state of
Delaware on November 13, 1990 and its principal executive offices
are located at 19589 N.E. 10th Avenue, Miami, Florida 33179, and
its telephone number is (305) 653-4274.
Business Strategy
The Company's strategy is to (i) continue to broaden its
licensed product base through internal product development and
product acquisition, (ii) add new license agreements, and (iii)
develop new distribution channels and outlets. The following are
key elements of the Company's business strategy.
Emphasis on Sports and Entertainment Products. The Company
has concentrated, and continues to concentrate, on obtaining
licenses with or relating to recognizable sports and
entertainment-related organizations, individuals and characters.
The Company has also broadened its sports product base with the
continued development of its newly purchased weighted glove
division.
High Quality Souvenirs and Sophisticated Graphics. The
Company designs, arranges the manufacture of, distributes and
sells, high quality souvenirs utilizing a soft, high gloss,
flexible polymer film, which can be produced in any color. The
Company uses graphic design and screen-printing techniques which
allow for bright and vivid display of Proprietary Marks against
various color backgrounds.
License Arrangements. The Company intends to maintain and
continually expand the Proprietary Marks incorporated on its
products. The Company will regularly evaluate opportunities to
enter into additional license agreements that are appropriate to
its business strategy. The Company has sought and will continue
to seek licensing arrangements with licensors that the Company
believes have desirable Proprietary Marks. While there may be
multiple licenses of the Proprietary Marks, the Company believes
that certain, if not all, of its license agreements are not
easily obtainable because, the Company believes that the parties
from whom the Proprietary Marks are licensed limit the number of
licenses granted. The Company has licenses covering three major
American professional sports leagues, major American colleges and
universities, comic and cartoon characters and other celebrities.
As of April 27, 1996, the company has not renewed licensing
agreements with the National Hockey League, Time Warner, Quarterback
Club and Notre Dame. The Company currently has no plans to renew these
agreements.
Targeted Distribution. The Company markets its products to
department stores, sporting goods and toy stores, mass merchants
and discount retailers.
Products
The Company is currently distributing five types of
SuperSouvenirs(trademark): Superpennants(registered trademark),
notepads, SuperSilhouettes(trademark), patented, weighted
athletic gloves and pens with miniature football helmets and
baseball caps attached to the top.
Superpennants(registered trademark) are pennants featuring
NFL, NBA, MLB, college and university team logos, as well as
Marvel Entertainment characters. Superpennants(registered
trademark) are manufactured by screen-printing color graphic
designs on a polymer film. Superpennants(registered trademark)
are made in two sizes, 20" x 49" which are used to decorate walls
or doors, and 5" x 12" (Stadium Series Superpennnants(registered
trademark)) which cling to car windows, glass, mirrors, and most
smooth surfaces without adhesive by using MiracleCling(registered
trademark) technology.
Notepads are pads of paper with logos of the different teams
printed on them. Notepads come in two varieties. One is a 5
1/2" x 8 1/2" pad with fifty sheets. The Company also has
notepads that are cubes that are 3 1/2" x 3 1/2" x 3 1/2" in
size.
SuperSilhouettes(trademark) are images of various cartoon
characters that are screen-printed on the same polymer film as
the Superpennant and die cut in different shapes and sizes. Like
Superpennants(registered trademark), SuperSilhouettes(trademark)
employ MiracleCling(registered trademark) technology to permit
them to adhere to various surfaces.
The Company believes that Superpennants(registered
trademark) and SuperSilhouettes(trademark) represent a type of
licensed novelty product which although similar in content to
other products, is significantly different in quality, color,
durability, flexibility, material, design and price than similar
competitive products.
The patented, weighted athletic gloves are used for a
variety of sports including a golf glove, fitness glove, and a
baseball batting glove. 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 pens with miniature football and baseball caps attached
to the top feature the names and emblems of professional football
and baseball teams.
License Agreements
The NFL, NBA, and MLB (collectively, the "Leagues") have
each established an exclusive licensing agent for their products.
Generally, these agents are highly selective in granting licenses
and are specific as to the scope of each license granted. The
Company has had non-exclusive licensing agreements with the
licensing agencies of all four of the Leagues. Colleges and
universities are licensed through several organizations: the
NCAA, Collegiate Concepts, Inc./International Collegiate
Enterprises, and the individual colleges themselves. The Company
has had a number of licenses representing approximately 40
colleges and universities in North America. The Company also has
had licenses with Time Warner for its Looney Tunes(trademark)
characters and with Marvel Entertainment for its comic book
characters (including Spiderman, Captain America and Wolverine).
The licenses generally entitle specified, limited use of league
or member team colors, player and comic book character images,
symbols and logos.
The following table sets forth the current licensing
agreements of the Company:
Products Licensor Territory
- ----------------- -------------------- ------------
Superpennants(regi NFL, NBA, MLB, Colleges, United States
stered trademark) Marvel Entertainment
(Spiderman Captain America
and Wolverine)
Super Silhouettes Marvel Entertainment United States
(trademark) (Spiderman,Captain America
and Wolverine)
The Company's current agreements with its licensors provide
for royalty rates per product ranging from 7% to 10% of gross sales
and average approximately 9% to 10% of net sales. These rates
may be increased by the licensors from time to time upon prior written
notice. Minimum payments are applied against royalty fees either
over the term of a contract or annually.
The Company's existing licensing agreements expire at
various times through March 31, 1998. The Company is currently in
the process of renewing its licenses with MLB and the NBA. The
terms of renewal options are negotiated separately and
historically the Company's material licenses have been renewed,
although there can be no assurances that the Company will
continue to be able to renew its licenses in the future at
commercially attractive rates.
Most of the Company's licenses are non-exclusive; however,
in some cases competition is limited by the number and kind of
licenses granted. The Leagues often limit the number of licenses
granted by product category, monitor the quality of licensed
products and generally protect the designs created by such
licenses. For example, the Company believes it is the only
company currently producing vinyl licensed sports and
entertainment pennants for any of the Leagues, while two other
companies are licensed to produce felt pennants. However, the
Company's license does not restrict the licensors from granting
licenses to produce vinyl sports and entertainment pennants to
other companies. The Company believes that the terms of its
licenses are comparable to licenses granted by the licensors for
similar product categories.
The termination or non-renewal of one or more of the
Company's principal licenses could have a material adverse effect
on the Company. Licenses may be terminated prior to the
expiration of their term by licensors for various reasons,
depending upon the agreement, such as failure to maintain certain
quality standards, failure to pay royalties in a timely manner,
sale of unauthorized items, failure to achieve minimum sales or
failure to perform other material terms of a license agreement.
The Company is currently in the process of renewing its licenses
with MLB and the NBA. Sales of MLB and NBA products accounted for
approximately 23% of fiscal 1996 sales. As of April 27, 1996,
the Company has not renewed licensing agreements with the National
Hockey League, Time Warner, Quarterback Club and Notre Dame. The
Company currently has no plans to renew these agreements.
Production and Inventory
The Company's Superpennants(registered trademark) and
SuperSilhouettes(trademark) are made from a soft, high gloss,
flexible polymer film which can be produced in many colors using
a computerized color matching process. This material is durable,
flexible, attractive and cleanable and may easily be autographed.
Although there are various sources of supply, the Company
currently purchases all of its polymer film from one independent
plastic manufacturer which is a subsidiary of a large
international corporation. Four to six weeks is allowed for
delivery of blank polymer film. Through an in-house art
department, the Company develops graphic designs of the
Proprietary Marks to utilize on this polymer film. During fiscal
year 1995 and 1996, the Company has spent $194,976 and $185,428
respectively, on design and development costs. The Company
emphasizes creativity in the design of its graphics and believes
that it often enhances licensors' standard marks, insignias and
logos. Graphic designs generally take from one day to several
months to produce. In order to produce the final product, the
graphic designs of Proprietary Marks are screen-printed onto
blank polymer film by an independent screen printer. The Company
believes that other manufacturers of the polymer film and other
screen-printers are currently available to provide these services
other than the Company's current sources, although there is no
assurance that the Company will be successful in retaining them,
if necessary, or that such services will be available to the
Company on acceptable terms.
The weighted gloves and pens are currently produced
overseas, however, these products could also be obtained
domestically from a variety of different sources.
In order to minimize product obsolescence due to teams
changing logos, the Company keeps a limited inventory of each
team. The sports leagues give prior notice to any logo changes
which allows the Company the time necessary to liquidate any
inventory of that particular team.
The Company believes that prompt delivery is essential to
success in its business and that it must attempt to predict
customer needs, especially those related to major events, such as
playoffs, movie openings or special engagements or performances,
where certain fast-selling items may have a relatively short
period of attractiveness to consumers.
The Company believes that it is the general practice in the
industry to provide rights of return or credits or concession for
unsold merchandise. Although the Company's sales are seasonal,
its products can be used for more than one sports season. Based
on this fact and the Company's limited operating experience, the
Company does not anticipate that returns or credits or
concessions for unsold merchandise will have a material adverse
effect on the Company's future sales.
Sales and Marketing
The Company believes that the ultimate consumers of the
Company's products are the fans of professional and college
sports teams and entertainment characters. While the popularity
of many sports teams may be somewhat regionalized, the cartoon
characters can be sold across the country, and appeal to a
younger consumer.
The Company believes that during the past five years, the
market for licensed sports products and cartoon characters has
grown as a result of extensive television and cable programming,
as well as the growth in professional and collegiate sporting
event attendance. Channels such as ESPN, ESPN2, The Sports
Channel and the Cartoon Channel, as well as the major networks
present the opportunity to view sports and cartoon programming 24
hours a day, seven days a week. These channels allow people of
all ages to view and be entertained, thus, the Company believes,
building loyalty and a customer base for licensed products. The
Company believes that increased enthusiasm for sports and
cartoons translates into higher sales for licensed products, as
consumers identify with teams, players, and characters.
The Company recognizes that different types of
SuperSouvenirs(trademark) lend themselves to different types of
retailers. The Company believes that the price, quality and
packaging of certain of its products will allow for some of its
products to be sold in department stores and specialty chains,
such as sporting goods stores and toy store chains. The Company
also believes that other products, such as
SuperSilhouettes(trademark) and the 5" X 12" Stadium Series
Superpennants(registered trademark), are targeted toward mass
merchants, discounters and other retailers.
The Company's primary method of distributing products is
through independent sales representatives who have been retained
to service different geographic regions of the United States on a
non-exclusive, commission only basis. The representatives market
the Company's products to department stores, sporting goods
stores, mass merchants, athletic and other specialty stores,
concessionaires, gift stores, and other retailers. These
representatives sell other products in addition to those of the
Company.
One customer accounted for approximately 36% and 11% of the
Company's 1995 and 1996 sales. A second customer accounted for
approximately 18% and 28% of the Company's 1995 and 1996 sales,
respectively. A third customer accounted for approximately 31% of
the Company's 1994 sales. A fourth customer accounted for
approximately 4% and 16% of the Company's 1995 and 1996 sales,
respectively. The Company has no written commitments with any of
these customers. The loss of any of these customers could have a
material adverse impact on the Company's sales and earnings.
The Company is in the process of beginning its sales and
marketing for its weighted glove division.
Competition
The licensed novelty and souvenir product business in
general, and the sports and entertainment aspect thereof, in
particular, are highly competitive. Competitive factors include
quality, price, style and service at the wholesale and retail
level. The Company believes that consumers differentiate its
products from other licensed novelty and souvenir products based
upon a combination of the quality, colors, durability,
flexibility, material, design and price. The Company believes
that it is presently the only licensed manufacturer of flexible
polymer pennants and silhouettes. The Company's competitors
include numerous companies in the licensed novelty and souvenir
product industry with substantially greater financial resources,
experience, manufacturing capabilities, sales and marketing
staffs and other resources than those of the Company. No
assurances can be given that the Company will in the future be
able to successfully compete in the industry.
The golf, baseball and fitness markets are highly
competitive. Although the Company's weighted gloves are patented
the Company is competing against many larger companies with
substantially greater financial resources.
Patents and Trademarks
The Company has obtained one patent for its method of
producing SuperSilhouettes(trademarks) and has other patent
applications pending, covering various aspects of its
SuperSouvenir(trademark) product line. In addition, in connection
with the acquisition of the weighted glove company, the Company
received an assignment of a patent covering the weighted glove.
In connection with the acquisition of the pen company, the
Company acquired a patent covering the pens. No assurances can be
given that it will be able to obtain additional patents.
The Company has also registered its logo and
Superpennant(registered trademark) as federal trademarks and has
applied for registration of SuperSouvenir(trademark),
SuperSilhouette(trademark), and SuperLogo(trademark).
Employees
As of July 15, 1996, the Company has eight employees,
including two in management, two in sales, one in the art
department, two in accounting, and one in warehousing. None of
the Company's employees are represented by a labor union. The
Company believes that its relationship with its employees is
satisfactory.
The Company has an employment agreement with its president
and chief executive officer. See "Executive
Compensation--Employment Agreement."
Item 2. Description of Property
The Company leases 10,450 square feet of office space and
adjoining warehouse space in North Miami Beach, Florida under a
noncancelable operating lease which expires on August 31, 1996.
Future minimum lease payments during the year ending April 30,
1997 are $12,000.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of stockholders,
through the solicitation of proxies or otherwise, during the
fourth quarter of the fiscal year covered by this report.
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's $.01 par value Common Stock ("Common Stock")
is quoted on the NASDAQ Small-Cap Market under the symbol UHTS.
The following table sets forth the high and low bid and ask
prices of the Common Stock, as reported by NASDAQ. The following
data reflects inter-dealer prices, without retail mark-up, mark
down or commission and may not necessarily represent actual
transactions. Per share prices reflect the one-for-four reverse
stock split of the Company's Common Stock approved on December 2,
1994.
Bid Ask
High Low High Low
Fiscal year ended April 30, 1995
- -------------------------------- ----- ----- ---- -----
First Quarter $3.50 $1.25 $4.25 $2.00
Second Quarter 4.50 1.75 5.75 2.50
Third Quarter 4.13 1.50 4.38 2.75
Fourth Quarter 4.13 1.25 4.38 1.75
Fiscal year ended April 30, 1996
- --------------------------------
First Quarter $4.13 $2.63 $4.50 $3.00
Second Quarter 3.88 .50 3.75 1.00
Third Quarter 4.00 .25 4.25 .38
Fourth Quarter 1.87 1.12 2.25 1.12
At July 15, 1996, there were 52 shareholders of record of
the Company's Common Stock, although the Company believes that
there are approximately 300 beneficial owners of its Common
Stock. In addition, there were three shareholders of the
Company's Preferred Stock.
Beginning May 1, 1995, the Preferred Stock pays a cumulative
dividend of $.25 per quarter. In addition, each share of
Preferred Stock is convertible into 2.5 shares of Common Stock
and may be redeemed by the Company at $10 per share. The
liquidation value of the Preferred Stock is $10 per share. There
are currently 49,950 shares of Preferred Stock issued and
outstanding. To date, while such dividends have accumulated, the
Company has not paid any cash or other dividends on such
Preferred Stock.
The Company has never paid a cash dividend on its Common
Stock and does not anticipate the payment of cash dividends in
the foreseeable future. The Company intends to retain any
earnings for use in the development and expansion of its
business.
Applicable provisions of the Delaware General Corporation
Law may affect the ability of the Company to declare and pay
dividends on its Common Stock. In particular, pursuant to the
Delaware General Corporation Law, a company may pay dividends out
of its surplus, as defined, or out of its net profits, for the
fiscal year in which the dividend is declared and/or the
preceding year. Surplus is defined in the Delaware General
Corporation Law to be the excess of net assets of the company
over capital. Capital is defined to be the aggregate par value of
shares issued.
Item 6. Management's Discussion And Analysis or Plan of Operation
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 - Years Ended April 27, 1996 versus April
29, 1995
Net sales for the year ended April 27, 1996 were $359,712,
as compared with $1,045,593 for the year ended April 29, 1995, a
decrease of $685,881. The decrease in net sales was due
primarily to the impact of the Major League Baseball strike. In
addition during fiscal year 1995 the Company made a one-time sale
to Kmart for approximately $300,000 of Looney Tunes merchandise.
No similar sale was made in fiscal year 1996.
Cost of sales for the year ended April 27, 1996 were
$508,169 as compared with $593,680 for the year ended April 29,
1995, a decrease of $85,511. Cost of sales as a whole for the
year was greater then sales primarily because of a reserve taken
aqainst inventory. This reserve, in the amount of $317,988, was taken
against the product from the expired license agreements, which include
the NHL, Time Warner, Quarterback Club, and Notre Dame.
Selling and distribution expenses for the year ended April
27, 1996 were $327,856 as compared with $449,732 for the year
ended April 29, 1995, a decrease of $121,876. 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. Selling and
distribution also includes storage, amortization of
Superpennant(registered trademark) displays, and business
promotion costs which do not necessarily correlate with sales.
General and administrative expenses for the year ended April
27, 1996 were $662,605, as compared with $884,258 for the year
ended April 29, 1995, a decrease of $221,653. General and
administrative expenses have decreased because of the reduction
in payroll and other office expenses necessitated by lower sales
volume and because of the Company's consolidation efforts in
order to reduce overhead.
Royalty and license expenses for the year ended April 27,
1996 were $92,840 as compared with $178,594 for the year ended
April 29, 1995, a decrease of $85,754. 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 April 27, 1996 were $30,337 as
compared with $102,567 at April 29, 1995, a decrease of $72,230.
The decrease is primarily the result of $397,778 being used for
operating activities and $113,885 being used for investing
activities offset by $439,433 of financing activities, consisting
primarily of advances from related parties.
Accounts payable and accrued expenses at April 27, 1996 were
$1,144,814 as compared with $835,336 at April 29, 1995, an
increase of $309,478. The increase in payables and accrued
expenses is attributable to the Company's need to conserve
existing cash balances.
Due to related parties at April 27, 1996 was $232,325 as
compared to $301,868 at April 29, 1995, a decrease of $69,543.
During fiscal 1996, $221,808 of related party debt was converted
into 140,904 shares of Common Stock. In addition $37,959 was
forgiven in exchange for 37,959 warrants to purchase stock at an
exercise price of $3.00. As of April 27, 1996, $502,300 is
convertible into 1,120,976 shares.
In August 1995, the Company acquired a private company engaged
in the sale of patented, weighted athletic gloves (the "Patented
Product") used for a variety of sports including a golf glove and
a baseball batting glove, in exchange for approximately 115,000
shares. In addition, the Company entered into three-year, $40,000
per year employment agreements with two of the prior owners of
the acquired company. Pursuant to the employment agreement, each
of the two prior owners received 8,333 shares of common stock
equating to a $25,000 signing bonus and each received options to
purchase 21,500 shares of common stock. These options expire on
June 4, 2005. The Company also issued an additional 9,000 shares
and 37,500 unregistered shares of common stock, to cover
professional fees relating to the acquisition, received an
assignment of the patent, issued an additional 69,999 stock
options to purchase common stock and signed a royalty agreement
with the previous owners. This acquisition was recorded under the
purchase method of accounting and, accordingly, the Company's
operations for the period subsequent to the acquisition is
included in the accompanying consolidated financial statement.
The following pro forma results are unaudited and were prepared
under the assumption that the transaction was effective at May 1,
1994.
April 27, April 29,
1996 1995
---------- ----------
Net Sales $ 420,385 $1,080,580
Net Loss $1,641,800 $1,439,830
Net Loss
per Common Share ($1.24) ($1.48)
In October 1995, the Company acquired substantially all of
the assets of another private company engaged in the sale of pens
with miniature football helmets and baseball caps attached to the
top of the pen featuring the names and emblems of professional
football and baseball teams. Under the terms of such
transaction, in exchange for certain assets of such company,
including inventory and patents relating to the products (the
"Products"), the Company (i) issued to the private company 60,000
shares of its Common Stock, (ii) paid (a) $37,588 on closing and
(b) will pay royalties of 10% on the first $3 million of net
sales, as defined, will pay royalties of 5% on the next $2
million in net sales, as defined, and will pay a royalty of 2%
for the next four years, (iii) entered into a three-year
consulting agreement with the principal of the company at an
annual fee of $50,000 plus a guaranteed bonus of $15,000, payable
in cash or stock at the Company's option and (iv) in connection
with the consulting agreement, granted options to the principal
of such company to purchase an aggregate of 55,000 shares of the
Company's Common Stock at the NASDAQ closing bid price of the
stock on the closing date of such acquisition as to 30,000 shares
and at the closing bid price on the date one year from the
closing date as to the remaining 25,000 shares terminating ten
years from the vest date. The Company also issued 30,000
unregistered shares of common stock to cover professional fees
relating to the acquisition.
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 May 3, 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, 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.
Item 7. Financial Statements
The financial statements of the Company are annexed to this
report and are referenced as pages F-1 to F-25.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
The directors and executive officers of the Company as of
July 15, 1996 are as follows:
Name Age Position
- ---------------- --- -------------------------------------
Bradley I. Meier 28 President,Chief Executive Officer
Assistant Secretary, and Director
Eric Snow 30 Chief Financial Officer and Secretary
Sanford Grossman 60 Director
Norman M. Meier 57 Director
Myron Orlinsky 55 Director
Michael Pietrangelo 53 Director
Bradley I. Meier has been President and Chief Executive Officer
of the Company and a director since inception in November 1990.
From September 1986 until May 1990, he was a student at the
University of Pennsylvania's Wharton School of Business, from
which he graduated in 1990 with a B.S. in Economics. Mr. Meier
lettered and played on the varsity baseball team at the
University of Pennsylvania, E.I.B.L. Champions in 1988, 1989 and
1990, and was selected All-Ivy League second baseman during his
senior year.
Eric Snow has been Chief Financial Officer of the Company since
January 1996. Mr. Snow was CFO of BCD Computer Distributions,
Inc., a company involved in the distribution and sale of computer
hardware and software nationally. From April 1992 to January
1995 Mr. Snow served as CFO/Controller for many small companies
working for a consultant firm, CFO Financial Services. From 1990
until March 1992 Mr. Snow served as Controller of a Anhauser
Busch Distributorship, Eagle Snacks Division.
Sanford Grossman has been a director of the Company since July
1992. Since July 1, 1994, Mr. Grossman has been Director of
Sports for the Fox Network. From September 1958 to June 1993, Mr.
Grossman had been employed by CBS Sports as Director of Sports.
Norman M. Meier has been a director of the Company since July
1992. Since December 1986, Mr. Meier is and has been President,
Chief Executive Officer and a director of Columbia Laboratories,
Inc., a publicly-traded corporation engaged in the development,
registration, manufacture and sale of pharmaceutical products.
From 1971 to 1977, Mr. Meier was Vice President of Sales and
Marketing for Key Pharmaceuticals ("Key"), a company which had
been engaged in the marketing and sales of pharmaceuticals until
its sale to Schering-Plough Corporation in June 1986. From 1977
until June 1986, Mr. Meier served as a consultant to Key.
Myron Orlinsky has been a director of the Company since July
1992. From January 1989 until the present, Mr. Orlinsky has
served as Chairman and Chief Executive Officer of VSI
International, Inc., a company involved in the importing,
distribution, marketing and sale of reading glasses, sunglasses
and accessory items, primarily to pharmaceutical chains. From
March 1972 through December 1988, he served as Chairman of Visual
Scene, Inc., a company engaged in the same business.
Michael Pietrangelo has been a director of the Company since
March 1993. From June 1990 to February 1994, Mr. Pietrangelo
served as President and Chief Executive Officer of Cleo Inc., a
subsidiary of Gibson Greetings, Inc., a company involved in
social expression products. From June 1989 through May 1990, he
served as President and Chief Operating Officer of Western
Publishing Group, Inc., a company engaged in the manufacturing
and distribution of books, games, and social expression products.
From May 1985 through May 1989, he served as President of
Schering-Plough's Personal Care Group, which included products
such as Coppertone, Dr Scholl's and DiGel. Mr. Pietrangelo also
serves on such charitable and civic boards as Youth Villages, the
Ronald McDonald House, the American Parkinson Disease
Association, Inc., and the Memphis College of Art.
Except for Norman M. Meier and Bradley I. Meier, who are father
and son, respectively, there are no family relationships among
the Company's executive officers and directors.
All directors hold office until the next annual meeting of
stockholders and the election and qualification of their
successors. Directors receive no compensation for serving on the
Board, except for the receipt of stock options and the
reimbursement of reasonable expenses incurred in attending
meetings. Officers are elected annually by the Board of Directors
and serve at the discretion of the Board. The Board of Directors
has two standing committees, the Audit Committee, consisting of
Myron Orlinsky and Sanford Grossman, and the Compensation
Committee, consisting of Myron Orlinsky and Michael Pietrangelo.
The Company has entered into indemnification agreements with
its executive officers and directors pursuant to which the
Company has agreed to indemnify such individuals, to the fullest
extent permitted by law, for claims made against them in
connection with their positions as officers, directors or agents
of the Company.
Dan Marino resigned from the Board of Directors in May 1996.
Compliance with Section 16(a) of the Exchange Act
Based solely on the Company's review of the copies of such
forms received by it, or oral or written representations from
certain reporting persons that no Forms 5 were required for those
persons, the Company believes that during the period ending April
27, 1996, all filing requirements applicable to its executive
officers, and greater than 10% beneficial owners were complied
with.
Item 10. Executive Compensation
The tables and descriptive information set forth below are
intended to comply with the Securities and Exchange Commission
compensation disclosure requirements applicable to, among other
reports and filings, annual reports on Form 10-KSBs. This
information is only being furnished with respect to the Company's
Chief Executive Officer ("CEO") because no other executive
officer earned in excess of $100,000 during the year ended April
27, 1996.
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------------ Securities
Name and Underlying
Principal Position Year Salary Bonus Options
- -------------------- ---- -------- ------ -------------------
Bradley I. Meier 1996 $ 75,000 $ - 90,000
President and Chief 1995 75,000 - 3,750
Executive Officer 1994 75,000 - -
Aggregated Option Exercises During 1996 and Fiscal Year End Option Values
Number of Securities Number of Unexercised
Underlying Unexercised In-the-Money
Shares Options at Options at
Acquired April 27, 1996 April 27, 1996
On Value Exer- Unexer- Exer Unexer-
Name Exercise Realized cisable cisable cisable cisable
- --------- -------- ------- ------- ------- ------- -------
Bradley I.
Meier - $ - 93,750 - - -
Employment Agreement
As of May 1, 1995, the Company entered into a new an
employment agreement with Bradley I. Meier expiring April 30,
1997. Under the terms of the employment agreement, Mr. Meier
devotes substantially all of his time to the Company and is paid
a base salary of $75,000 per year. Additionally, pursuant to the
employment agreement, and during each year thereof, Mr. Meier is
entitled to a bonus equal to 1% of the annual gross sales of the
Company, but only if and to the extent that such annual gross
sales exceed $3.5 million. The employment agreement with Mr.
Meier contains non-competition and non-disclosure covenants.
Under the terms of the employment agreement, Mr. Meier has been
granted ten-year stock options to purchase (i) 90,000 shares of
Common Stock, of which 45,000 shares are exercisable at $2.88 per
share and the remaining 45,000 shares are exercisable at $3.88
per share; and (ii) an additional 90,000 shares of Common Stock
which shares will vest on May 1, 1996, and are exercisable at an
exercisable price equal to the closing bid price of the Company's
Common Stock on May 1, 1996 ($1.25).
Item 11. Security Ownership Of Certain Beneficial Owners And
Management
As of July 15, 1996, directors and named executive officers,
individually and as a group, beneficially owned Common Stock as
follows:
Name of Shares, Nature of Interest and
Beneficial Owner (1) Percentage of EquitySecurities(2)
- ---------------------- ----------------------------------
Bradley I. Meier (3) 2,105,068 51.1%
Norman M. Meier (4) 1,248,624 35.0%
Sanford Grossman (5) 111,250 3.7%
Myron Orlinsky (6) 115,000 3.8%
Michael Pietrangelo (7) 159,917 5.2%
Officers and directors
as a group (5 people) (8) 3,346,457 66.9%
- --------
(1) Unless otherwise indicated, the Company believes that all
persons named in the table have sole voting and investment
power with respect to the shares of Common Stock
beneficially owned by them.
(2) A person is deemed to be the beneficial owner of Common
Stock that can be acquired by such person within 60 days of
the date hereof upon the exercise of warrants or stock
options or conversion of Series A Preferred Stock or
convertible debt. Except as otherwise specified, each
beneficial owner's percentage ownership is determined by
assuming that warrants, stock options, Series A Preferred
Stock and convertible debt that is held by such person (but
not those held by any other person) and that are
exercisable within 60 days from the date hereof, have been
exercised or converted.
(3) Consists of (i) (a) 787,229 shares of Common Stock, (b)
options to purchase 1,875 shares of Common Stock at an
exercise price of $9.00, options to purchase 1,875 shares
of Common Stock at an exercise price of $12.50, ten-year
options to purchase 90,000 shares at an exercise price of
$2.88 as to 45,000 shares and $3.88 as to the remaining
45,000 shares granted pursuant to Mr. Meier's employment
agreement, options to purchase 90,000 shares $1.13 per
share and options to purchase 500,000 shares at $1.25 per
share (c) warrants to purchase 15,429 shares of Common
Stock at an exercise price of $1.75, warrants to purchase
339,959 shares at an exercise price of $3.00 per share and
warrants to purchase 82,000 shares of Common Stock at $1.00
and (ii) an aggregate of 196,701 shares of Common Stock
(including shares of Common Stock issuable upon exercise of
warrants and conversion of Series A Preferred Stock)
beneficially owned by Belmer Partners, a Florida general
partnership ("Belmer"), of which Mr. Meier is a general
partner. Also excludes all securities owned by Norman
Meier and Phyllis Meier, Mr. Meier's father and mother,
respectively. Mr. Meier is the President, Chief Executive
Officer and a Director of the Company.
(4) Consists of (i) (a) 457,371 shares of Common Stock, (b)
options to purchase 3,750 shares of Common Stock at an
exercise price of $12.50 per share, and options to purchase
3,750 shares of Common Stock at an exercise price of $9.00
per share and options to purchase 250,000 shares of Common
Stock at an exercise price of 1.25, (c) warrants to
purchase 3,082 shares of Common Stock at an exercise price
of $22.00 per share, warrants to purchase 2,494 shares of
Common Stock at an exercise price of $4.25 per share,
warrants to purchase 28,538 shares of Common Stock at an
exercise price of $1.50 per share, warrants to purchase
120,000 shares of Common Stock at an exercise price of
$3.00 and warrants to purchase 110,000 shares of Common
Stock at an exercise price of $1.00, (d ) 24,938 shares of
Common Stock issuable upon conversion of Series A Preferred
Stock owned by such person and (e) 48,000 shares of Common
Stock issuable on conversion of related party debt and (ii)
an aggregate of 196,701 shares of Common Stock (including
shares of Common Stock issuable upon exercise of warrants
and conversion of Series A Preferred Stock) beneficially
owned by Belmer, of which Mr. Meier is a general partner.
Excludes all securities owned by Bradley Meier or Phyllis
Meier. Mr. Meier is a Director of the Company, the father
of Bradley Meier, the President of the Company and the
former spouse of Phyllis Meier.
(5) Consists of 1,250 shares of Common Stock, options to
purchase 6,250 shares of Common Stock at an exercise price
of $22.00 per share, options to purchase 1,875 shares of
Common Stock at an exercise price of $9.00, options to
purchase 1,875 shares of Common Stock at an exercise price
of $12.50, and options to purchase 100,000 shares of Common
Stock at an exercise price of $1.25. Mr. Grossman is a
director of the Company.
(6) Consists of options to purchase 7,500 shares of Common
Stock at an exercise price of $22.00 per share, options to
purchase 3,750 shares of Common Stock at an exercise price
of $9.00, options to purchase 3,750 shares of Common Stock
at an exercise price of $12.50, and options to purchase
100,000 shares of Common Stock at an exercise price of
$1.25 . Mr. Orlinsky is a director of the Company.
(7) Consists of (a) 3,250 shares of Common Stock, (b) options
to purchase 6,250 shares of Common Stock at an exercise
price of $6.00, options to purchase 1,875 shares of Common
Stock at an exercise price of $9.00 and options to
purchase 1,875 shares of Common Stock at an exercise price
of $12.50, (c) warrants to purchase 20,000 shares of
Common Stock at an exercise price of $3.00 (d) 26,666
shares of Common Stock issuable on conversion of related
party debt and (f) options to purchase 100,000 shares of
Common Stock at an exercise price of $1.25. Mr.
Pietrangelo is a Director of the Company
(8) See footnotes (1) - (7) above.
As of July 15, 1996, the following table sets forth
information regarding the number and percentage of Common Stock
held by all persons who are known by the Company to beneficially
own or exercise voting or dispositive control over 5% or more of
the Company's outstanding Common Stock:
Number of Shares Percent
Name and Address Beneficially Owned(1)(2) ofClass(1)(2)
- ------------------------- ------------------------- ------------
Phyllis R. Meier (3)
c/o Universal Heights, Inc.
19589 N.E. 10th Avenue
Miami, Florida 33179 912,426 27.2%
Belmer Partners (4)
c/o Phyllis R. Meier
Managing General Partner
Universal Heights, Inc.
19589 N.E. 10th Avenue
Miami, Florida 33179 196,701 6.6%
Shephard Lane, Esq.
Slatt & Lane
600 Third Avenue
New York, NY 10016 179,142 5.8%
- --------
(1) Unless otherwise indicated, the Company believes that all
persons named in the table have sole voting and investment
power with respect to the shares of Common Stock
beneficially owned by them.
(2) A person is deemed to be the beneficial owner of Common
Stock that can be acquired by such person within 60 days of
the date hereof upon the exercise of warrants or stock
options or conversion of Series A Preferred Stock or
convertible debt. Except as otherwise specified, each
beneficial owner's percentage ownership is determined by
assuming that warrants, stock options, Series A Preferred
Stock and convertible debt that are held by such a person
(but not those held by any other person) and that are
exercisable within 60 days from the date hereof, have been
exercised or converted.
(3) Consists of (i) (a) 333,792 shares of Common Stock, (b)
2,880 shares of Common Stock issuable upon conversion of
related party debt, (c) warrants to purchase 354,115 shares
of Common Stock, and (d) 24,938 shares of Common Stock
issuable upon conversion Series A Preferred Stock owned by
Ms. Meier, and (ii) an aggregate of 196,701 shares of
Common Stock (including shares of Common Stock issuable
upon exercise of warrants and conversion of Series A
Preferred Stock) beneficially owned by Belmer. Excludes
all securities owned by Bradley Meier and Norman Meier, the
son and former spouse of Ms. Meier, respectively. Ms.
Meier is managing general partner of Belmer.
(4) Consists of (a) 54,533 shares of Common Stock, (b) 67,168
shares of Common Stock issuable upon exercise of warrants
and (c) 75,000 shares of Common Stock issuable upon
conversion of Series A Preferred Stock. Belmer Partners is
a Florida general partnership in which Phyllis R. Meier is
managing general partner and Bradley I. Meier and Norman M.
Meier are general partners.
Item 12. Certain Relationships And Related Transactions
Effective January 1, 1991, the Company entered into a loan
commitment agreement with Norman M. Meier pursuant to which Mr.
Meier agreed to lend the Company up to $300,000 for working
capital purposes. During fiscal 1995, $199,487 of this loan was
repaid through the issuance of 9,975 shares of Preferred Stock to
each of Norman M. Meier and Phylis R. Meier and the balance of
$85,613, was repaid through the issuance of 24,938 shares of
Common Stock to each of Norman M. Meier and Phylis R. Meier.
Effective January 1, 1991, the Company also borrowed
$500,000 for working capital purposes from Belmer Partners, a
Florida general partnership, of which Phylis R. Meier is managing
general partner and Bradley I. Meier and Norman M. Meier are also
general partners. During fiscal 1995, this loan was repaid
through the issuance of 30,000 shares of Preferred Stock to
Belmer Partners.
As of April 29, 1995 and April 27, 1996, the Company owed
$144,862 and $60,873, respectively, in accrued salaries and
consulting fees. During fiscal 1996, an additional $87,164 of
salaries have been accrued. During fiscal 1995, $83,750 of
accrued salaries were paid through the issuance of 55,833 shares
of Common Stock. During fiscal 1996, $133,994 of consulting fees
were paid through the issuance of 83,067 shares of Common Stock.
In addition, $37,959 of accrued salaries were forgiven in
exchange for the issuance of warrants to purchase 37,959 shares
of Common Stock at $3.00 per share.
During fiscal 1995, Phylis Meier and Bradley Meier lent the
Company $17,685 and $27,244, respectively. During Fiscal 1996,
Bradley Meier lent the Company an additional $185,256, Phylis
Meier lent the Company an additional $221,800, Norman Meier lent
the Company $118,000, Shephard Lane lent the Company $10,000 and
Michael Pietrangelo lent the Company $10,000. These loans bear
interest at 10%. As of April 27, 1996 the Company and debtors
approved the conversion of $212,500 of Bradley Meier's loans were
to be repaid through the issuance of 510,096 shares of Common
Stock, Phylis Meier's loans were to be repaid through the
issuance of 240,000 shares of Common Stock, $100,000 of Norman
Meier's loans were to be repaid through the issuance of 266,667
shares of Common Stock.
Transactions between the Company and its affiliates are on
terms no less favorable to the Company than can be obtained from
third parties on an arms' length basis. Transactions between the
Company and any of its executive officers or directors require
the approval of a majority of disinterested directors.
ITEM 13. Exhibits and Reports on Form 8-K
Exhibits
3.1 Registrant's Restated Amended and Restated Certificate of
Incorporation1
3.2 Registrant's Bylaws1
4.1 Form of Common Stock Certificate1
4.2 Form of Warrant Certificate1
4.3 Form of Warrant Agency Agreement1
4.4 Form of Underwriter Warrant1
4.7 Affiliate Warrant1
10.1 Registrant's 1992 Stock Option Plan1
10.2 Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers1
10.3 Employment Agreement, effective May 1, 1992, between the
Registrant and Bradley I. Meier1
10.5 Employment Agreement, effective May 1, 1992, between the
Registrant and Daniel C. Marino, Jr.1
10.6 General Retail Licensing Agreement dated February 26, 1993
by and between Universal Heights, Inc. and National Football
League Properties, Inc.
10.7 QBC General Retail Licensing Agreement dated February 26,
1993 by and between Universal Heights, Inc. and National
Football League Properties, Inc.
10.8 Quarterback Club General Retail Licensing Agreement dated
February 26, 1993 by and Universal Heights, Inc., NFL
Quarterback Club, and National Football League Properties,
Inc.
10.9 Letter Agreement dated February 17, 1992, by and between
Stringer Marketing Group and Universal Heights, Inc.1
10.10 Retail License Agreement dated January 17, 1992 by and
between Universal Heights, Inc. and NBA Properties, Inc.1
10.11 Letter Agreement dated March 9, 1992 by and between HCS
Marketing Group and Universal Heights, Inc.1
10.12 License Agreement dated June 1, 1991 by and between
National Hockey League Services, Inc. c/o Time Warner
Sports Merchandising and Universal Heights, Inc.1
10.13 Distribution Agreement dated February 28, 1992 by and
between Winterland Concessions Co. and Universal Heights,
Inc.1
10.14 Agreement dated September 4, 1991 by and between
Universal Heights, Inc. and CCI/ICE1
10.15 Agreement dated May 1, 1992 by and between Universal
Heights, Inc. and Sports Art Canada, Limited1
10.16 Letter Agreement of August 16, 1991 between Ronnie Lott
and Universal Heights, Inc.1
10.17 Letter Agreement of July 29, 1991 between Lawrence
Taylor and Universal Heights, Inc.1
10.18 Lease as of January 1, 1991 by and between Columbia
Laboratories, Inc. and Universal Heights, Inc.1
10.19 Loan Commitment Agreement dated January 1, 1991 between
Universal Heights, Inc. and Norman M. Meier1
10.20 Promissory Note of Universal Heights, Inc. to Norman M.
Meier in the maximum amount of $300,000 dated January 1,
19911
10.21 Amendment No. 1 to the Loan Commitment Agreement and
Promissory Note effective January 1, 1991 in the maximum
amount of $300,000 by and among Universal Heights, Inc. and
Norman M. Meier1
10.22 Promissory Note of Universal Heights, Inc. to Belmer
Partners, in the maximum amount of $500,000, dated June 1,
19911
10.23 Amendment No. 1 to the Promissory Note in the maximum
amount of $500,000 entered into by and among Universal
Heights, Inc. and Belmer Partners1
10.24 Guaranty dated August 28, 1992 by Bradley I. Meier in
favor of Belmer Partners1
10.25 Guaranty dated August 28, 1992 by Bradley I. Meier in
favor of Norman M. Meier1
10.26 Guaranty dated August 28, 1992 by Brian S. Turtletaub in
favor of Belmer Partners1
10.27 Guaranty dated August 28, 1992 by Brian S. Turtletaub in
favor of Norman M. Meier1
10.28 Pledge Agreement dated August 28, 1992 by and among
Bradley I. Meier and Norman M. Meier, as agent for himself
and Belmer Partners1
10.29 Pledge Agreement dated August 28, 1992 by and among
Brian S. Turtletaub and Norman M. Meier, as agent for
himself and Belmer Partners1
10.30 License Agreement dated May 3, 1993 by and between Major
League Baseball Properties, Inc. and Universal Heights,
Inc.2
10.31 Lease dated June 1, 1993 by and between Skylake
Industrial Park & E.M. Segall, as landlord, and Universal
Heights, Inc., as tenant.2
10.32 License Agreement dated August 10, 1993 by and between
NHL Enterprises, Inc. and Universal Heights, Inc.3
10.33 General Lease Agreement dated August 28, 1993 by and
between AT&T Credit Corporation and Universal Heights, Inc.3
10.34 Addendum #2 (to Lease dated March 26, 1993) by and
between E.M. Segall and Universal Heights, Inc. dated
September 1, 1993.4
10.35 Loan agreement dated October 23, 1993 by and between
Equitable Bank and Universal Heights, Inc.4
10.36 Termination agreement dated November 30, 1993 by and
between Universal Heights, Inc. and Brian S. Turtletaub4
10.37 Joint venture agreement dated January 27, 1994 by and
between Universal Heights, Inc. and Sportspads, Inc5
(1) Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (File No. 33-51546) declared effective
on December 14, 1992.
(2) Incorporated by reference to the Registrant's Annual Report
on Form 10-KSB for the year ended April 30, 1993.
(3) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended July 31, 1993.
(4) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended October 31,
1993.
(5) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended January 31,
1994.
(6) Incorporated by reference to the Registrant's Annual Report
on Form 10-KSB for the year ended April 30, 1994.
Reports on Form 8-K
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities
Exchange Act, the Registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNIVERSAL HEIGHTS, INC.
Date: August 8, 1996 By: /s/ Bradley I. Meier
---------------------------
Bradley I.Meier, President
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
/s/ Bradley I. Meier President,Assistant Secretary, August 8, 1996
- ------------------------ and Director
Bradley I. Meier
/s/ Director August 8, 1996
- ------------------------
Sanford Grossman
/s/ Norman M. Meier Director August 8, 1996
- --------------------
Norman M. Meier
/s/ Director August 8, 1996
- -------------------
Myron Orlinsky
/s/ Michael Pietrangelo Director August 8, 1996
- -----------------------
Michael Pietrangelo
/s/Eric Snow Chief Financial Officer, August 8, 1996
- ---------------- Secretary
Eric Snow
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act, the Registrant caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
UNIVERSAL HEIGHTS, INC.
Date: August 8, 1996 By:
--------------------------
Bradley I. Meier, President
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
________________ President,AssistantSecretary, August 8, 1996
Bradley I. Meier and Director
________________ Director August 8, 1996
Sanford Grossman
_______________ Director August 8, 1996
Norman M. Meier
______________ Director August 8, 1996
Myron Orlinsky
__________________ Director August 8, 1996
Michael Pietrangelo
_______________
Eric Snow Chief Financial Officer, August 8, 1996
Secretary
PART II
UNIVERSAL HEIGHTS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended April 27, 1996
and April 29, 1995
UNIVERSAL HEIGHTS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Auditors F-2
Consolidated Balance Sheet - April 27, 1996 F-3 - F-4
Consolidated Statements of Operations for the
Years Ended April 27, 1996 and April 29, 1995 F-5
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended April 27, 1996
and April 29, 1995 F-6
Consolidated Statements of Cash Flows for the
Years Ended April 27, 1996 and April 29, 1995 F-7 - F-9
Notes to the Consolidated Financial Statements F-10 - F-25
F-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Universal Heights, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheet of
Universal Heights, Inc. and subsidiary as of April 27, 1996, and the
related consolidated statements of operations, changes in
consolidated stockholders' equity and cash flows for the years ended
April 27, 1996 and April 29, 1995. These statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Universal Heights, Inc. and subsidiary, as of April 27,
1996, and the results of their consolidated operations and cash flows
for each of the two years in the period ended April 27, 1996, in
conformity with generally accepted accounting principles.
As discussed in Note 1, the accompanying consolidated financial
statements have been prepared assuming that the Company will continue
as a going concern. The Company has had continuing operating losses
and had a working capital deficiency of $283,470 at April 27, 1996.
The Company must successfully complete its product development and
marketing efforts. As a result the Company may need additional
funds. These factors raise substantial doubt about the ability of
the Company to continue as a going concern. Management's plans in
regard to these matters are described in Note 1. The financial
statements do not include any adjustment that might result from the
outcome of these uncertainties.
Millward & Co. CPAs
Fort Lauderdale, Florida
July 18, 1996
F-2
UNIVERSAL HEIGHTS, INC.
CONSOLIDATED BALANCE SHEET
April 27, 1996
-----------------------------
Proforma
(See Note 12) Historical
-------------- ----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 30,337 $ 30,337
Accounts receivable, net of
allowance for doubtful
accounts of $30,200 44,902 44,902
Inventories - Current 804,654 804,654
Other current assets 226,355 226,355
--------- ---------
Total current assets 1,106,248 1,106,248
--------- ---------
PROPERTY AND EQUIPMENT:
Leasehold improvements 8,413 8,413
Machinery and equipment 170,162 170,162
Furniture and fixtures 5,684 5,684
Displays 184,111 184,111
Design, artwork and silkscreen 24,079 24,079
--------- ---------
392,449 392,449
Less - Accumulated depreciation
and amortization 287,452 287,452
--------- ---------
104,997 104,997
--------- ---------
PATENTS AND TRADEMARKS, net of
accumulated amortization of
$70,756 717,341 717,341
INVENTORIES - Non-current 439,595 439,595
OTHER ASSETS 9,816 9,816
--------- ---------
Total assets $2,377,997 $2,377,997
========= =========
(Continued)
F-3
UNIVERSAL HEIGHTS, INC.
CONSOLIDATED BALANCE SHEET
(Continued)
April 27, 1996
-----------------------------
Proforma
(See Note 12) Historical
------------- ----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 862,662 $ 952,662
Accrued expenses 192,152 192,152
Due to related parties 232,325 232,325
Current portion capitalized
lease obligations 12,579 12,579
--------- ---------
Total current liabilities 1,299,718 1,389,718
--------- ---------
CAPITALIZED LEASE OBLIGATIONS 15,344 15,344
LONG TERM DEBT - Due to Related Parties - 462,500
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Cumulative preferred stock, $.01 par value;
1,000,000 shares authorized; 49,950 shares
issued and outstanding 500 500
Common stock, $.01 par value; 5,000,000
shares authorized; 1,598,882 shares
issued and outstanding; 2,687,312
on a proforma unaudited basis 26,872 15,988
Additional paid-in capital 6,777,767 6,222,651
Accumulated deficit (5,742,204) (5,728,704)
--------- ---------
Total stockholders' equity 1,062,935 510,435
--------- ---------
Total liabilities and
stockholders' equity $2,377,997 $2,377,997
========= =========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-4
UNIVERSAL HEIGHTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
April 27, April 29,
1996 1995
---------- ---------
NET SALES $ 359,712 $ 1,045,593
COST OF SALES 508,169 593,680
--------- ---------
Gross (loss) profit (148,457) 451,913
--------- ---------
OPERATING EXPENSES:
Selling and distribution 327,856 449,732
General and administrative 662,605 884,258
Design and development 185,428 194,976
Royalty and license 92,840 178,594
--------- ---------
Total operating expenses 1,268,729 1,707,560
--------- ---------
Loss from operations (1,417,186) (1,255,647)
--------- ---------
OTHER INCOME (EXPENSE):
Interest income - 2,965
Interest expense (39,139) (46,128)
Other income (expense) (1,286) 815
--------- ---------
(40,425) (42,348)
--------- ---------
Net loss $(1,457,611) $(1,297,995)
========= =========
NET LOSS PER COMMON SHARE $ (1.26) $ (1.84)
========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,197,780 704,800
========= =========
The accompanying notes to consolidated financial statements
are in integral part of these statements
F-5
<TABLE>
UNIVERSAL HEIGHTS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 27, 1996 AND APRIL 29, 1995
<CAPTION>
Additional
Preferred Stock CommonStock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ -------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, May 1, 1994 - $ - 661,320 $26,453 $4,070,667 $(2,973,098) $1,124,022
Issuance of 49,950 shares of
preferred stock in exchange
for $499,487 of related
party debt in October 1994 49,950 500 - - 498,987 - 499,487
Issuance of 166,242 shares
in exchange for $249,263
of related party debt in
January 1995 - - 166,242 6,649 242,714 - 249,363
Issuance of 6,250 shares
at $1.50 per share in
connection with a public
relations agreement in
March 1995 - - 6,250 250 9,125 - 9,375
Issuance of 80,000 shares at
$1.25 per share in April 1995 - - 80,000 3,200 96,800 - 100,000
Net loss, year ended April 29, 1995 - - - - - (1,297,995) (1,297,995)
------ ------ -------- ------
BALANCE, April 29, 1995 49,950 500 913,812 9,138 4,945,707 (4,271,093) 684,252
Issuance of common stock
for acquisitions - - 268,166 2,681 733,046 - 735,727
Issuance of common stock
on debt conversion - - 140,904 1,409 220,399 - 221,808
Debt forgiven in exchange
for warrants - - - - 37,959 - 37,959
Issuance of common stock
for services - - 276,000 2,760 285,540 - 288,300
Net loss, year ended
April 27, 1996 - - - - - (1,457,611) (1,457,611)
------ ------ -------- ------ --------- ----------- ---------
BALANCE, April 27, 1996 49,950 $ 500 1,598,882 $15,988 $6,222,651 $(5,728,704) $ 510,435
====== ====== ======== ====== ========= =========== =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements
F-6
UNIVERSAL HEIGHTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
April 27, April 29,
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,457,611) $(1,297,995)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 263,052 298,754
Provision for doubtful accounts 12,200 5,647
Provision for inventory obsolescence 317,988 92,970
Stock issued for services 164,904 -
Changes in assets and liabilities-
(Increase) decrease in:
Accounts receivable 26,307 116,261
Inventories 78,151 177,196
Other current assets 10,612 16,174
Other assets 151 (5,400)
Increase in:
Accounts payable and accrued expenses 186,468 195,753
------- -------
Net cash used in operating activities (397,778) (400,640)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (17,963) (61,778)
Acquisition of patents and trademarks (11,522) (13,435)
Acquisition of Businesses (84,400) -
------- -------
Net cash used in investing activities (113,885) (75,213)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - 109,375
Net repayments under line of credit (132,656) (30,200)
Advances from stockholders 625,672 83,394
Repayment of related party loans - (10,000)
Repayment of loans payable (39,249) (15,775)
Payment on capital lease obligations (14,334) (10,714)
------- -------
Net cash provided by financing activities 439,433 126,080
------- -------
(Continued)
F-7
UNIVERSAL HEIGHTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
(Continued)
April 27, April 29,
1996 1995
------- -------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS $ (72,230) $ (349,773)
CASH AND CASH EQUIVALENTS,
Beginning of year 102,567 452,340
------- -------
CASH AND CASH EQUIVALENTS,
End of year $ 30,337 $ 102,567
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 8,831 $ 28,370
======= =======
SUPPLEMENTAL NONCASH FINANCING AND INVESTING ACTIVITIES:
Preferred stock issued in exchange
for debt $ - $ 499,487
======= =======
Common stock issued in exchange for debt $ 259,767 $ 249,363
======= =======
Common stock issued in exchange for
services provided $ 123,396 $ 9,375
======= =======
Acquisition of fixed assets in exchange
for notes $ - $ 20,762
======= =======
Common stock issued in exchange
for acquisitions $ 735,728 $ -
======= =======
Write-off of fully depreciated
fixed assets $ 510,524 $ -
======= =======
The accompanying notes to consolidated financial statements
are an integral part of these statements
F-8
UNIVERSAL HEIGHTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWO YEARS ENDED APRIL 27, 1996
(Continued)
ACQUISITIONS OF BUSINESSES:
As discussed in Note 2, in August 1995 the Company acquired a
private company engaged in the sale of patented, weighted
athletic gloves (the "Patented Product") used for a variety of
sports including a golf glove and a baseball batting glove, in
exchange for 178,166 shares of the Company's common stock with a
recorded value of $489,727. The following summarizes the net
assets acquired:
Accounts receivable $ 41,628
Inventory 364,438
Property and equipment 4,000
Accounts payable (193,010)
Line of credit payable (132,656)
--------
$ 84,400
========
In October 1995 the Company acquired substantially all of the
assets of another company for 60,000 shares of common stock and
$37,588 of cash with a recorded value of $246,000.
CONVERSION OF DEBT:
During fiscal 1996, $221,808 of related party debt was converted
into 140,904 shares of Common Stock. In addition, $37,959 was
forgiven in exchange for 37,959 warrants to purchase stock at an
exercise price of $3.
The accompanying notes to consolidated financial statements
are an integral part of these statements
F-9
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------
Organization
- ------------
Universal Heights, Inc. (the "Company") was incorporated in
Delaware in November 1990 to engage in the design, marketing,
distribution and sale of high-quality, licensed novelty and
souvenir products under the trade name SuperSouvenirs(trademark)
as well as other sports related products (Note 2).
The accompanying financial statements include the accounts of the
Company and its wholly owned subsidiary. All intercompany
accounts and transactions have been eliminated in consolidation.
Basis of Presentation and Continued Existence
- ---------------------------------------------
The financial statements have been prepared assuming the Company
will continue as a going concern. The basis of accounting
contemplates the recovery of the Company's assets and the orderly
satisfaction of its liabilities in the normal course of
conducting business. The Company has not had significant income
since inception and has an accumulated deficit of $5,728,704 and
a working capital deficiency of $283,470 as of April 27, 1996.
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 from its existing products and
acquisitions to cover its variable and fixed operating costs
through at least the year ending May 3, 1997. Based on its
limited operations experience, the Company believes its annual
sales in the year ended May 3, 1997 will have to be at least
$2,800,000 in order for it to begin generating a positive cash
flow. 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. If the Company's
projections, assumptions and/or estimates prove to be inaccurate,
or the Company encounters unanticipated expenses, problems or
difficulties, the Company could be required to seek alternative
sources of capital or have to curtail or cease its operations.
In order to secure additional financing for its business, the
Company is seeking funds from private and public sources. The
Company may raise funds through additional equity financing, debt
financing or some form of collaborative arrangement.
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 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
$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.
F-10
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued):
--------------------------------------------
Based on the Company's current plans and assumptions, which
include raising capital through equity offerings, converting debt
to equity, and reductions in operating costs, the Company
believes its cash on hand, operating revenues and related party
loans will be sufficient to fund its anticipated operations
through fiscal 1997.
Fiscal Year
- -----------
The Company operates within a conventional 52/53 week accounting
fiscal year. The Company's fiscal year ends on the Saturday
closest to April 30. The fiscal years ended April 27, 1996 and
April 29, 1995, respectively.
Cash and Cash Equivalents
- -------------------------
For the purposes of the consolidated statement of cash flows, the
Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
- ----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash and temporary
investments and accounts receivable. The Company invests its
excess cash in both deposits and high quality short-term liquid
money market instruments with major financial institutions and
the carrying value approximates market value. The Company has
not incurred losses related to these investments.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out)
or market. Components of inventory costs include materials,
labor and manufacturing overhead. At April 27, 1996 inventories
consist of the following:
Raw materials $ 367,586
Work in process 530,313
Finished goods 346,350
----------
1,244,249
Non-current inventory (439,595)
----------
Current inventory $ 804,654
==========
F-11
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued):
--------------------------------------------
At April 27, 1996, $439,595 of the Company's inventory is in
excess of the Company's current requirements based on recent
sales levels. This amount has been classified as non-current in
the accompanying financial statements. Management has developed
a program to reduce this inventory to desired sales levels in the
near term and believes no loss will be incurred on its
disposition. No estimate can be made of a range of amounts of
loss that are reasonably possible should this program not be
successful.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is
computed by the straight-line method based on estimated useful
lives of the assets.
Machinery and equipment and furniture and fixtures are
depreciated over lives ranging from five to ten years and
depreciation is included in general and administrative expense.
The costs incurred in the design, artwork, and production of
acetate films employed to produce silk screens are amortized
using the straight-line method over their estimated three year
lives and the related expense is included in design and
development expenses. In the year ended April 27, 1996, the
Company wrote off approximately $31,000 of design and artwork
costs due to slow moving inventory. The cost of the Company's
Superpennant(trademark) display racks are depreciated over a two
year life and are included in selling and distribution expense.
Depreciation and amortization expense was approximately $299,000
and $263,000 in 1996 and 1995, respectively.
Patents and Trademarks
- ----------------------
The cost of acquiring patents and trademarks are amortized using
the straight-line method over their estimated ten year lives.
Revenue Recognition
- -------------------
Revenue from the sale of products is recognized upon shipment to
the customer.
Net Loss Per Share
- ------------------
Loss per share is computed by dividing the net loss plus
preferred dividend requirement by the weighted average number of
shares of common stock outstanding during the period. Shares to
be issued upon the exercise of the outstanding options and
warrants or the conversion of the preferred stock are not
included in the computation of loss per share as their effect is
antidilutive.
F-12
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued):
--------------------------------------------
Income Taxes
- ------------
The Company adopted, effective May 1, 1993, the Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes", issued in February 1992. Under the liability method
specified by SFAS 109, the deferred tax liability is determined
based on the difference between the financial statement and tax
bases of assets and liabilities as measured by the enacted tax
rates which will be in effect when these differences reverse.
Deferred income tax expense is the result of changes in the
liability for deferred taxes. The principle type of difference
between assets and liabilities for financial statement and tax
return purposes is the net operating loss carryforward.
Significant Customers
- ---------------------
One customer accounted for approximately 11% and 36% of the
Company's 1996 and 1995 sales, respectively. A second customer
accounted for approximately 16% and 4% of the Company's 1996 and
1995 sales, respectively. A third customer accounted for
approximately 28% and 18% of the Company's 1996 and 1995 sales,
respectively. The Company has no written commitments with any of
these customers. The loss of any of these customers could have a
material adverse impact on the Company's sales and earnings.
Recent Pronouncements
- ---------------------
In March 1995, the FASB issued Statement No. 121 (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of". SFAS 121 becomes effective for
fiscal years beginning after December 15, 1995 and addresses the
accounting for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to
be held and used for long-lived assets and certain identifiable
intangibles to be disposed of. The Company believes this
pronouncement will not have a significant impact on the Company's
consolidated financial statements.
In October 1995, the FASB issued Statement No. 123 (SFAS 123),
"Accounting for Stock Based Compensation". The accounting
requirements of SFAS 123 are effective for transactions entered
into in fiscal years that begin after December 15, 1995. The
disclosure requirements of SFAS 123 are effective for financial
statements for fiscal years beginning after December 15, 1995, or
for an earlier fiscal year for which this statement is initially
adopted for recognizing compensation costs. The Company believes
this pronouncement will not have a significant impact on the
Company's consolidated financial statements.
Use of Estimates
- ----------------
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.
F-13
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 2 - ACQUISITIONS OF BUSINESSES:
---------------------------
In August 1995, the Company acquired a private company engaged in
the sale of patented, weighted athletic gloves (the "Patented
Product") used for a variety of sports including a golf glove and
a baseball batting glove, in exchange for approximately 115,000
shares. Of these shares, 65,000 are without guaranteed price and
are valued at $2.10, fair market value. The remaining 50,000
shares are valued at the guaranteed price of $4 per share. In
addition, the Company entered into three-year, $40,000 per year
employment agreements with two of the prior owners of the
acquired company. Pursuant to the employment agreement, each of
the two prior owners received 8,333 shares of common stock
equating to a $25,000 signing bonus and each received options to
purchase 21,500 shares of common stock at $3.50 per share. These
options expire on June 4, 2005. The Company also issued an
additional 9,000 shares at $2.72 and 37,500 unregistered shares
of common stock at $2.10 per share, the fair market value at the
date of the agreement, to cover professional fees relating to the
acquisition, received an assignment of the patent, issued an
additional 69,999 stock options to purchase common stock (Note 5)
and signed a royalty agreement with the previous owners (Note 8).
A total of 178,166 shares were issued on acquisition at a total
cost of $489,727.
The following is a summary of the assets and liabilities
acquired:
Accounts receivable $ 41,628
Inventory 364,438
Property and equipment 4,000
Accounts payable (193,010)
Line of credit payable (132,656)
----------
$ 84,400
==========
This acquisition was recorded under the purchase method of
accounting and, accordingly, the Company's operations for the
period subsequent to the acquisition is included in the
accompanying consolidated financial statement. The following pro
forma results are unaudited and were prepared under the
assumption that the transaction was effective at May 1, 1994.
April 27, April 29,
1996 1995
--------- ---------
Net Sales $ 420,385 $ 1,080,580
Net Loss $ 1,641,800 $ 1,439,830
Net Loss per Common Share ($1.24) ($1.48)
F-14
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 2 - ACQUISITIONS OF BUSINESSES (Continued):
---------------------------------------
In October 1995, the Company acquired substantially all of the
assets of another private company engaged in the sale of pens
with miniature football helmets and baseball caps attached to the
top of the pen featuring the names and emblems of professional
football and baseball teams. Pursuant to the terms of such
transaction, in exchange for certain assets of such company,
including inventory and patents relating to the products, the
Company (i) issued to the private company 60,000 shares of its
Common Stock, (the Company has guaranteed the stock will have a
value at least $3.75 per share or $225,000 as of October 12,
1997. The acquisition has been valued at this guaranteed
price.), (ii) paid (a) $37,588 on closing and (b) will pay
royalties of 10% on the first $3 million of net sales, as
defined, will pay royalties of 5% on the next $2 million in net
sales, as defined, and will pay a royalty of 2% for the next four
years, (iii) entered into a three-year consulting agreement with
the principal of the company at an annual fee of $50,000 plus a
guaranteed bonus of $15,000 payable in cash or stock at the
Company's option and (iv) in connection with the consulting
agreement, granted options to the principal of such company to
purchase an aggregate of 55,000 shares of the Company's Common
Stock at the NASDAQ closing bid price of the stock on the closing
date of such acquisition as to 30,000 shares and at the closing
bid price on the date one year from the closing date as to the
remaining 25,000 shares terminating ten years from the vesting
date. The Company also issued 30,000 unregistered shares of
common stock at $.70 per share, fair market value, at the date of
the agreement to cover professional fees relating to the
acquisition. A total of 90,000 shares were issued on acquisition
at a total cost of $246,000. Sales and expenses of the acquired
company were immaterial and have not been presented on a proforma
basis.
The purchase price has been allocated to the assets purchased and
the liabilities assumed based on the fair values at the dates of
acquisition. The excess of the purchase price over the fair
values of the net assets acquired was $651,327 and has been
recorded as patents which is being amortized on a straight line
basis over ten years.
NOTE 3 - COMPANY INDEBTEDNESS:
---------------------
Capitalized Lease Obligations
- -----------------------------
As of April 27, 1996, the Company has approximately $105,000 of
furniture and equipment pursuant to leases which have been
accounted for as capital leases. Interest on these obligations
range from 11.1% to 23.1%.
F-15
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 3 - COMPANY INDEBTEDNESS (Continued):
---------------------------------
The future minimum lease payments under capital leases together
with the present value of the minimum lease payments as of April
27, 1996 are as follows:
1997 $ 15,264
1998 11,735
1999 3,963
2000 1,289
----------
Total minimum lease payments 32,251
Less: amount representing interest 4,328
----------
Present value of minimum lease payments 27,923
Less: current portion 12,579
----------
Long term capital lease obligations $ 15,344
==========
NOTE 4 - DUE TO RELATED PARTIES:
-----------------------
Due to related parties at April 27, 1996 consists of the following:
Note payable due on demand with interest at
10% per annum convertible into 26,666
shares of
common stock. $ 10,000
Note payable to a stockholder and director, due on
demand with interest at 10% per annum convertible
into 26,666 shares of common stock. 10,000
Note payable to an officer and director,
with interest at prime (8.25%) plus 2%,
convertible into 15,429 shares of Common
Stock; if note is converted, warrants to
purchase 15,429 shares of Common Stock at
$1.75 per share, will be issued
(a). 27,000
Note payable to an officer and director,
with interest at 10% per annum convertible
into
493,965 shares of common stock (a). 185,500
Note payable to a stockholder, with
interest at prime (8.25%) per annum
convertible into 314,034
shares of Common Stock (b). 118,00
F-16
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 4 - DUE TO RELATED PARTIES (Continued):
-----------------------------------
Note payable to stockholder, with interest
at 10% per annum convertible into 242,880
shares of common stock. 151,800
Deferred salary, due on demand, non-
interest bearing 49,712
Accrued interest, due on demand, non-
interest bearing 142,813
-------
694,825
Less current portion 232,325
-------
$ 462,500
=======
* As of April 27, 1996 the note holders announced their intention
to convert the debt as follows:
(a) 510,096 shares for $212,500 of debt
(b) 266,667 shares for $100,000 of debt
(c) 240,000 shares for $150,000 of debt
Accordingly, this debt is reflected as non-current on the
Company's balance sheet.
NOTE 5 - INCOME TAXES:
-------------
To date, the Company has incurred tax operating losses and,
therefore, has generated no income tax liabilities. As of April
27, 1996, the Company has generated net operating loss
carryforwards totaling approximately $3,535,600 which are
available to offset future taxable income, if any, through 2011.
As the utilization of such operating losses for tax purposes is
not assured, the deferred tax asset has been fully reserved
through the recording of a 100% valuation allowance. Should a
cumulative change in ownership of more than 50% occur within a
three-year period, there could be an annual limitation on the use
of the net operating loss carryforward.
The components of the net deferred income taxes are as follows:
Deferred Tax Assets:
Net Operating Loss Carryforward $1,237,400
Inventory 176,600
Consulting Expense 69,200
Compensation 17,400
Other Deferred Tax Assets 16,000
---------
Total Deferred Tax Assets 1,516,600
Valuation Allowance for Deferred Tax Assets (1,516,600)
_________
Deferred Income Taxes, Net $ -
=========
F-17
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 5 - INCOME TAXES (Continued):
-------------------------
The valuation allowance has increased by $215,900 from the April
29, 1995 allowance.
The net operating loss carryforwards are scheduled to expire as follows:
Expiration
Date
- ----------
2006 $ 8,300
2007 250,800
2008 721,700
2009 1,010,000
2010 1,115,700
2011 429,100
-----------
$ 3,535,600
===========
NOTE 6 - STOCKHOLDERS' EQUITY:
---------------------
Cumulative Preferred Stock
- --------------------------
In October 1994, 49,950 shares of Preferred Stock were issued in
repayment of $499,487 of related party debt. Each share of
preferred stock is convertible into 2.5 shares of Common Stock.
Beginning May 1, 1995, the Preferred Stock pays a cumulative
dividend of $.25 per share per quarter. In connection with this
transaction, the Company issued the holders warrants to purchase
12,488 shares of Common Stock at $4.25 per share, exercisable
through October 17, 2004. The Preferred Stock is redeemable by
the Company at $10 per share through April 2000 and has a
liquidation value of $10 per share. Year end April 27, 1996
dividends have not been declared. Dividends in arrears amount to
$49,950.
Stock Option Plan
- -----------------
All employees, officers, directors and consultants of the Company
or any subsidiary are eligible to participate in the Universal
Heights, Inc. 1992 Stock Option Plan (the "Plan"). Under the
Plan, as amended, a total of 168,750 shares of Common Stock have
been authorized for issuance upon exercise of the options.
Information on options are as follows:
F-18
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 6 - STOCKHOLDERS' EQUITY (Continued):
---------------------------------
Number of
Shares Price per Share
--------- ---------------
Outstanding, May 1, 1994 135,625 $4.00 - 22.00
Granted 22,250 1.50 - 4.00
Canceled (50,250) 1.50 - 22.00
-------
Outstanding, April 29, 1995 107,625 3.00 - 22.00
Granted - -
Canceled (9,750) 4.00 - 10.00
-------
Outstanding, April 27, 1996 97,875 3.00 - 22.00
=======
Options exercisable:
April 29, 1995 100,375 $4.00 - 22.00
======== =============
April 27, 1996 97,875 $3.00 - 22.00
======== =============
Other Stock Options
- -------------------
Pursuant to the joint venture agreement with SPI (Note 9),
options to purchase 20,000 shares of stock are to be issued at a
price per the 1992 stock option plan, the current market price.
In connection with the purchase of the weighted athletic glove
company (Note 2), options to purchase a total of 112,999 shares
of Common Stock were issued as follows:
* Options to purchase 3,333 shares of common stock at $3
per share, vesting July 31, 1996 and expiring July 31, 2005
were issued to each of three prior stockholders.
* Options to purchase 21,500 shares of common stock at
$3.50 per share vesting June 5, 1995 and expiring June 4,
2005 were issued to each of two prior owners pursuant to
their employment agreements.
* Options to purchase 30,000 shares of common stock at $3
per share, vesting when sales of weighted athletic gloves
reach $12.5 million in any twelve consecutive months,
expiring on August 27, 2005 were issued to each of two
prior owners.
F-19
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 6 - STOCKHOLDERS EQUITY (Continued):
--------------------------------
Warrants
- --------
During the year ended April 27, 1996, the Company issued warrants
to purchase a total of 828,320 shares of common stock at the
market price on the date of issuance as follows:
* 80,000 and 75,000 shares of common stock at a price of $1
and $3 per share, exercisable through October 11, 2005 and
August 11, 2005, respectively, to professionals involved in
the acquisition of the two companies (Note 2).
* 82,000 and 339,959 shares of common stock at a price of
$1 and $3 per share, exercisable through October 11, 2005
and August 11, 2005, respectively, to an officer and
director of the Company.
* 276,667 shares of common stock at prices ranging from $1
to $3 per share, exercisable through July 21, 2005 to
October 11, 2005 to stockholders of the Company.
* 10,000 and 15,429 shares of common stock at a price of
$2.25 and $1.75 per share, respectively, upon the
conversion of related party debt.
* 50,000 shares of common stock pursuant to a consulting
agreement as follows (Note 6):
10,000 shares at $1.00 per share vested October 23, 1995
10,000 shares at $1.75 per share vested April 23, 1996
10,000 shares at $1.75 per share vested October 23, 1996
10,000 shares at $1.75 per share vested April 23, 1997
10,000 shares at $1.75 per share vested October 23, 1997
In connection with the Company's initial public offering in December
1992, the Company sold units, each unit included warrants (the
"IPO Warrants"). Effective in December 1995, the Company's Board of
Directors amended the terms of the IPO Warrants to reduce the
exercise price and extend the expiration date. Each IPO Warrant
entitles its registered owner to purchase, at the exercise price
of $6.00, one share of the Company's Common Stock until December
31, 1998 (the "IPO Warrant Expiration Date"). The Company may
call and redeem all outstanding IPO Warrants at any time upon 30
days' prior written notice, at the redemption price of $.01 per
IPO Warrant, at such time as the market price of its Common Stock
has exceeded the IPO Warrant exercise price by 20% for the period
of 20 consecutive business days, provided that the holder may
exercise the IPO Warrant at any time prior to the expiration of
the 30-day period. The IPO Warrants are protected by customary
anti-dilution provisions.
Holders of IPO Warrants are not entitled to vote, to receive
dividends, or to exercise any rights of holders of common stock
until the warrants have been fully exercised.
F-20
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 6 - STOCKHOLDERS EQUITY (Continued):
--------------------------------
Other Stock Issuances
- ----------------------
In January 1995, $165,613 of related party debt, which includes
$80,000 of accrued interest, and $83,750 of deferred salary, was
converted into 110,409 and 55,833 shares, respectively, of common
stock at $1.50 per share.
In April 1995, 80,000 shares were issued in a private placement
for $1.25 per share or $100,000.
In October 1995, 45,000 unregistered shares of common stock were
issued for $.70 per share, the fair market value at the date of
issuance, for legal services.
In February 1996, in satisfaction of $70,000 of accounts payable,
25,000 shares of common stock were issued at $3 per share, the
fair market value of the shares as of that date.
In February 1996, 153,557 shares of common stock were issued at
$1.27 to $3 per share upon the conversion of $232,362 of related
party debt. Of these shares, 12,653 were returned by an officer
and director of the Company subsequent to April 27, 1996, and the
related debt was forgiven in exchange for 37,959 warrants to
purchase common stock at an exercise price of $3.
In connection with the two business acquisitions in the year
ended April 27, 1996, a total of 178,166 and 90,000 shares of
common stock were issued, respectively. Of these shares, 158,166
unregistered shares were valued at prices ranging from $.70 to
$2.10 per share, 60,000 and 50,000 shares were issued at $3.75
and $4 per share, the guaranteed values, respectively (Note 2).
NOTE 7 - CONSULTING AGREEMENTS:
----------------------
In October 1995, the Company signed a consulting agreement to
provide public and shareholder relations services. The agreement
is effective for two years and required the issuance of 50,000
shares of common stock all of which have been issued as of April
27, 1996 and warrants to purchase 50,000 shares of common stock
(Note 5). The shares are valued at the fair market value as of
the date of the agreement; $.70 per share or an aggregate of
$35,000. As of April 27, 1996, $25,459 of costs relating to this
agreement have been deferred.
F-21
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 7 - CONSULTING AGREEMENTS (Continued):
----------------------------------
In December 1995, the Company signed a consulting agreement to
assist management with its financial public relations efforts
including raising debt and equity capital. The agreement is
effective for one year and requires the issuance of 142,000
shares of common stock all of which have been issued as of April
27, 1996. The shares are valued at the market value as of the
date of the agreement; $1 per share or an aggregate of $142,000.
As of April 27, 1996, $91,425 of costs relating to this agreement
have been deferred. Also issued were 14,000 unregistered shares
at $.70 per share, the fair market value for the introduction of
the consultant to the Company.
NOTE 8 - PUBLIC RELATIONS AGREEMENT:
---------------------------
In March 1995, the Company signed a two-year public relations
agreement which requires payments of $1,000 per month for the
first six months, $2,500 per month for the second six months and
$3,000 per month for the final twelve months. As additional
compensation, the Company issued 6,250 shares of Common Stock at
$1.50 per share and issued in October 1995, an option to purchase
an additional 6,250 shares of Common Stock at $1.50 per share,
exercisable through March 2000. This agreement was canceled
effective January 1, 1996.
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
------------------------------
Operating Leases
- ----------------
The Company leases office and adjoining warehouse space under a
noncancelable operating lease. Future minimum lease payments are
as follows:
1997 $ 12,000
=========
In addition, future lease payments are subject to adjustment
based on annual changes in the Consumer Price Index (as defined
in the lease). Rent expense for the years ended April 27, 1996
and April 29, 1995 was $42,534 and $38,599, respectively.
Employment Agreement
- --------------------
The Company has an employment agreement with its President
pursuant to which the President receives annual compensation of
$75,000 through April 30, 1997. This agreement provides for
additional compensation equal to an aggregate 1.0% of gross sales
in excess of $3,500,000 annually, 45,000 ten-year options to
purchase shares at $2.88, 45,000 ten-year options to purchase
shares at $3.88 and 90,000 ten-year options to purchase shares at
$1.125.
F-22
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued):
------------------------------------------
Licensing Agreements
- --------------------
The Company's existing licensing agreements expire at various
times through March 31, 1998. The terms of renewal options are
negotiated separately and historically the Company's material
licenses have been renewed, although there can be no assurances
that the Company will continue to be able to renew its licenses
in the future. As of April 27, 1996, the Company has not renewed
licensing agreements with the National Hockey League, Time
Warner, Quarterback Club and Notre Dame. The Company currently
has no plans to renew these agreements.
Under the terms of the agreements, the Company is required to pay
royalties ranging from 7 - 10% of the net or gross sales,
depending on the contract, which are applied towards the minimum
guaranteed royalty.
In connection with the purchase of the weighted athletic glove
company (Note 2) a royalty agreement effective during the life of
the patent was signed with the former owners requiring minimum
royalties of $10,000 in 1996, $20,000 in 1997 and $30,000 per
year thereafter. If such royalties are not paid, the patents
would be reassigned to the previous owners of the company.
NOTE 10 - INVESTMENT IN JOINT VENTURE:
----------------------------
In January 1994, the Company entered into a joint venture with
Sportpads, Inc. ("SPI"), a privately-held company, to market and
distribute SPI's line of licensed notepads. The products of the
joint venture are various sizes of notepads depicting the logos
of the NFL, NBA, NHL, MLB, and various colleges and universities.
The joint venture provides that the Company serve as the managing
joint venturer. In addition, the joint venture provides for a
profit split of 50%-50%. The Company also has the option to
purchase SPI's interest in the joint venture at anytime during
its five year term. The financial results of this joint venture
have been consolidated for the year ended April 29, 1995.
All Sportpad inventory is provided to the Company on a
consignment basis. In the year ended April 29, 1995, Sportpads
and the Company split the monthly cost of approximately $1,600
for packaging equipment used in the manufacturing process. At
the end of each month, accounts payable were established to
reimburse Sportpads for inventory and packaging materials used.
An accrual was established to record the joint venture profit or
loss. For the year ended April 29, 1995, total sales for the
joint venture were $173,820. As of April 29, 1995, the Company
owed Sportpads $31,221 for consignment sales, equipment rentals,
and materials consumed, and $11,712 for accrued profits from the
joint venture.
In accordance with the terms of the agreement, the joint venture
was terminated effective April 29, 1995.
F-23
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 11 - INDUSTRY SEGMENT INFORMATION:
-----------------------------
The Company operated periodically in two industry segments during
the fiscal year ended April 27, 1996, gifts and novelty and
training and fitness. Products sold in the gifts and novelty
segment include, predominantly Superpenants(registered trademark)
and pen products. Products sold in the training and fitness
segment include weighted athletic gloves. Business segment
information is as follows:
Year Ended April 27, 1996
-----------------------------------
Gifts and Training and
Novelty Fitness Totals
--------- ------------ --------
Net sales $ 323,362 $ 36,350 $ 359,712
Loss from operations (1,259,399) (157,787) (1,417,186)
Identifiable assets:
Segment assets 514,038 486,249 1,000,287
Corporate assets - - 180,259
---------
1,180,546
Property and equipment (392,449)
---------
Patents and trademarks $ 788,097
========
Depreciation and amortization $ 142,130 $ 27,778 $ 169,908
========= ========= =========
Capital expenditures $ 224,665 $ 486,247 $ 710,912
========= ========= =========
NOTE 12 - PROFORMA BALANCE SHEET EVENT:
-----------------------------
As of April 27, 1996, the Company and debtors approved the
conversion of $462,500 of related party debt and $90,000 of
accounts payable into 1,016,763 and 71,667 shares of common stock
were converted. The related party debt is converted at a 50%
discount to market as of the date of the related agreements and
the accounts payable is converted at market as of the date of the
agreement. The unaudited pro forma column of the accompanying
balance sheet gives effect to both of these proposed
transactions.
F-24
UNIVERSAL HEIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 27, 1996 and April 29, 1995
NOTE 13 - SUBSEQUENT EVENTS:
------------------
On May 1, 1996, pursuant to the employment agreement with the
Company President, 90,000 ten-year options to purchase common
stock were issued at $1.13, the closing bid price on that day.
In June 1996, the Company signed a license agreement with Hale
Irwin, a professional golfer, granting the Company the exclusive
right and license within the defined contract territory from June
1, 1996 to May 31, 1999, to advertise and promote the weighted
athletic gloves with Hale Irwin's endorsement. The agreement
requires the payment of $50,000 in four quarterly installments
beginning June 1, 1996.
It also requires the issuance of 10,000 options to purchase
registered shares on June 1, 1996 plus additional options on June
1, 1997 and June 1, 1998 so that the total number of common share
options issued multiplied by 80% of the closing bid price of the
Company's Common Stock on June 1, 1996 equal $50,000.
In July 1996, the Company issued options to purchase 1,210,000
shares of Common Stock at $1.25 per share to various officers,
directors, employees and consultants of the Company.
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 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
$250,000.
F-25
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-27-1996
<PERIOD-END> APR-27-1996
<CASH> 30,337
<SECURITIES> 0
<RECEIVABLES> 75,102
<ALLOWANCES> 30,200
<INVENTORY> 804,654
<CURRENT-ASSETS> 1,106,248
<PP&E> 392,449
<DEPRECIATION> 287,452
<TOTAL-ASSETS> 2,377,997
<CURRENT-LIABILITIES> 1,389,718
<BONDS> 0
0
500
<COMMON> 15,988
<OTHER-SE> 493,947
<TOTAL-LIABILITY-AND-EQUITY> 2,377,997
<SALES> 359,712
<TOTAL-REVENUES> 359,712
<CGS> 508,169
<TOTAL-COSTS> 508,169
<OTHER-EXPENSES> 1,268,729
<LOSS-PROVISION> 330,188
<INTEREST-EXPENSE> 39,139
<INCOME-PRETAX> (1,457,611)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,457,611)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,457,611)
<EPS-PRIMARY> (1.26)
<EPS-DILUTED> (1.26)
</TABLE>
