SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly ended January 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-20848
UNIVERSAL HEIGHTS, INC.
(Name of small business issuer in its charter)
Delaware 65-0231984
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19589 N.E. 10th Avenue
Miami, Florida 33179
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (305) 653-4274
Indicate by check mark whether the Company (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Company was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares of the Common Stock of Universal Heights,
Inc. issued and outstanding as of February 28, 1997:
3,315,589.
UNIVERSAL HEIGHTS, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The following unaudited, condensed consolidated financial
statements of the Company have been prepared in accordance with
the instructions to Form 10-QSB and, therefore, omit or condense
certain footnotes and other information normally included in
financial statements prepared in accordance with generally
accepted accounting principles. In the opinion of management,
all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial information
for the interim periods reported have been made. Results of
operations for the nine months ended January 31, 1997 are not
necessarily indicative of the results for the year ending April
30, 1997.
UNIVERSAL HEIGHTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, April 27,
1997 1996
(Unaudited)
ASSETS:
Current assets-
Cash and cash equivalents $ 1,547 $ 30,337
Accounts receivable, net (5,348) 44,902
Inventories 816,044 804,654
Other current assets 339,722 226,355
Total current assets 1,151,965 1,106,248
Property and equipment, net 79,665 104,997
Patents and trademarks, net 650,340 717,341
Inventories-non-current 439,595 439,595
Other assets 9,816 9,816
$ 2,331,381 $ 2,377,997
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities-
Accounts payable $ 838,807 $ 952,662
Accrued expenses 204,167 192,152
Due to related parties 259,580 232,325
Current portion of capitalized
lease obligations 11,878 12,579
Total current liabilities 1,314,432 1,389,718
Capitalized lease obligations 6,451 15,344
Long-term debt-due to related parties- 462,500
Stockholders' equity-
Preferred stock, $.01 par value;
1,000,000 shares authorized;
138,700 shares issued and outstanding 1,387 500
Common stock, $.01 par value;
20,000,000 shares authorized;
3,315,589 and 1,598,882 shares
issued and outstanding as of
January 31, 1997
and April 27, 1996, respectively 33,155 15,988
Additional paid-in capital 7,395,177 6,222,651
Accumulated deficit (6,419,221) (5,728,704)
Total stockholders' equity 1,010,498 510,435
$ 2,331,381 $ 2,377,997
See notes to condensed consolidated financial statements
UNIVERSAL HEIGHTS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
January 31, January 27, January 31, January 27,
1997 1996 1997 1996
NET SALES $ 149,622 $ 301,999 $ 27,666 145,847
COST OF GOODS SOLD 60,593 192,786 9,319 88,044
Gross profit 89,029 109,213 18,347 57,803
OPERATING EXPENSES:
Selling and distribution 67,794 142,638 24,005 60,319
General and administrative 608,462 592,203 197,996 216,492
Design and development 62,393 116,220 23,122 33,447
Royalty and license 32,500 51,420 12,221 16,758
Total operating expenses 771,150 902,481 257,345 327,016
Loss from operations (682,122) (793,268) (238,999) (269,340)
OTHER INCOME (EXPENSE):
Interest income 925 191 (371) 56
Interest expense (9,280) (27,943) (3,179) (11,047)
Other income - 10,864 - 10,864
(8,355) (16,888) (3,550) (127)
Net loss $(690,477) $ (810,156) $(242,548) $ (269,340)
NET LOSS PER COMMON SHARE $ (0.23) $ (0.65) $ (0.08) $ (0.18)
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 2,968,329 1,239,000 3,219,974 1,522,000
See notes to condensed consolidated financial statements
UNIVERSAL HEIGHTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
January 31, January 27,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(690,478) $(810,194)
Adjustments to reconcile net loss to net
cash used for operating activities-
Depreciation and amortization 86,207 148,178
Provision for doubtful accounts (20,033) -
Provision for inventory obsolescence - 38,318
Changes in assets and liabilities-
(Increase) decrease in:
Accounts receivable 70,282 17,919
Inventories (11,390) 99,486
Other current assets (113,366) 80,511
Other asset - (9,860)
Increase (decrease) in:
Accounts payable and accrued expenses 1,660 204,208
Net cash used for operating activities (677,118) (231,396)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (7,647) (6,532)
Purchase of business, net - (170,244)
Acquisition of patents and trademarks 13,773 (105,091)
Net cash used for investing activities 6,126 (281,867)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
line of credit - (31,394)
Issuance of common stock and warrants 460,000 -
Advances from stockholders 191,796 453,399
Payment on capital lease obligations (9,594) (10,909)
Net cash provided by financing activities 642,202 411,906
(Continued)
UNIVERSAL HEIGHTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Nine Months Ended
January 31, January 27,
1997 1996
NET DECREASE IN CASH
AND CASH EQUIVALENTS (28,790) (102,167)
CASH AND CASH EQUIVALENTS,
beginning of period 30,337 102,567
CASH AND CASH EQUIVALENTS,
end of period $ 1,547 $ 400
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 1,830 $ 8,940
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING AND FINANCING
ACTIVITIES:
Common stock issued in exchange
for debt $ 658,516 $ 548,897
Preferred stock issued in exchange
for debt $ 88,690 $ -
See notes to condensed consolidated financial statements
UNIVERSAL HEIGHTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES:
Except as disclosed below, the accounting policies followed
for quarterly financial reporting are the same as those disclosed
in Note (1) of the Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended April 27, 1996.
As of April 28, 1996, the Company changed its accounting
fiscal year from a conventional 52/53 week fiscal year ending on
the Saturday closest to April 30 to a calendar year ending on
April 30.
(2) SALE OF COMMON STOCK AND WARRANTS:
In July 1996, a group of investors purchased warrants from
the Company at $.05 per warrant entitling the holders to purchase
1,433,333 shares of the Company's Common Stock at $.70 per share.
During July, warrants to purchase 254,760 shares were exercised.
As a result of these transactions, the Company received gross
proceeds of $250,000. The remaining warrants to purchase shares
of common stock expired in January 1997.
(3) CONVERSION OF DEBT TO COMMON STOCK AND PREFERRED STOCK:
As of December 3, 1996, an additional $65,850 of related
party debt was converted into 175,600 shares of Common Stock. In
addition warrants to purchase 131,700 shares of common stock at
an exercise price of $.75 were issued.
As of January 31, 1997, $10,000 of debt was converted into
26,666 shares of common stock and an additional $88,690 of
related party debt was converted into 88,690 shares of Class M
Convertible Preferred Stock. Each share of Class M Convertible
Preferred Stock can be converted into 5 shares of Common Stock.
Class M Convertible Preferred Stock shareholders will be entitled
to elect 2 members of the Board of Directors of the Company.
As of February, 1997, the Company issued 70,000 shares of its
Common Stock to two consultants to the Company in exchange for
legal and financial services. These transactions are reflected in
the accompanying condensed balance sheet as of January 31, 1997.
(4) ISSUANCE OF WARRANTS:
In February, 1997, the Company issued 1,000,000 warrants to
purchase Common Stock at $.75 and 1,000,000 warrants to purchase
the Company's Common Stock at $1.25 to a consultant for financial
consulting services. The warrants expire March 1, 2000.
(5) SERIES A PREFERRED STOCK:
In December, 1996, the Company and its Series A Convertible
Preferred Stockholders agreed to amend the Agreement to Convert
Debt to Equity and to have all past and future Series A
Convertible Preferred Stock dividends be due on April 30, 1998.
UNIVERSAL HEIGHTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Prior to January 31, 1993, the Company was focused on
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. The Company was no longer a
development stage company effective February 1, 1993; however, it
has continued to incur losses since that date. The Company cannot
reasonably anticipate when, if ever, it will generate income
sufficient to cover its cost of sales and variable and fixed
operating expenses.
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, 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 that manufactures/produces licensed pens.
The Company believes this acquisition will enhance its product
offering by providing products that are complementary to the
Company's existing product line, for example, the Company will
now offer licensed pens along with its existing lines of notepads
and sportcubes. 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 is seeking ways to expand its existing areas of
business. Toward that end, the Company is exploring opportunities
to form or acquire an insurance company that will participate in
the Florida Department of Insurance Market Challenge takeout
program. The Market Challenge program was established to
depopulate the Florida Joint Underwriting Association(JUA)
homeowner portfolio. The Company has formed a wholly-owned
insurance holding company subsidiary which will have a subsidiary
insurer company to engage in homeowner insurance and be eligible
to receive portfolio transfers under the Market Challenge
Program.
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. 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. The remaining
warrants to purchase shares of common stock expired January 1997.
Results of Operations - Nine Months Ended January 31, 1997 versus
January 27, 1996
Net sales for the nine months ended January 31, 1997 were
$149,622, as compared with $301,999 for the nine months ended
January 27, 1996. The Company had decreased sales to one of its
larger customers over this time period.
Cost of sales for the nine months ended January 31, 1997
were $60,593 as compared with $192,786 for the nine months ended
January 27, 1996. Cost of sales as a percentage of net sales
decreased from approximately 64% to approximately 40%, primarily
as a result of a change in the product mix sold.
Selling and distribution expenses for the nine months ended
January 31, 1997 were $67,794 as compared with $142,638 for the
nine months ended January 27, 1996. Selling and distribution
expenses include, among other things, sales commissions, certain
display costs, and net shipping expenses which are a function of
the volume of net sales. The overall dollar decrease in selling
and distribution expenses is primarily attributable to a
reduction in discretionary selling expenses.
General and administrative expenses for the nine months
ended January 31, 1997 were $608,462, as compared with $592,203
for the nine months ended January 27, 1996. General and
administrative expenses have increased due to the commitments
made through the 1995 acquisitions.
Design and development expenses for the nine months ended
January 31, 1997 were $62,393 as compared with $116,220 for the
nine months ended January 27, 1996. Design and development
expenses have decreased since the majority of the design work
required to produce product for the major sports leagues and
colleges has been completed.
Royalty and license expenses for the nine months ended
January 31, 1997 were $32,500 as compared with $51,420 for the
nine months ended January 27, 1996. The Company expenses
royalties in the period in which the related sales are generated.
Additional amounts to satisfy required minimum guaranteed
royalties are expensed over the term of the particular license
agreements, and, therefore, do not necessarily fluctuate with
sales for the period.
Results of Operations - Three Months Ended January 31, 1997
versus January 27, 1996
Net sales for the three months ended January 31, 1997 were
$26,666, as compared with $145,847 for the three months ended
January 37, 1996. The Company had decreased sales to one of its
larger customers over this time period.
Cost of sales for the three months ended January 31, 1997
were $9,319 as compared with $88,044 for the three months ended
January 27, 1996. Cost of sales as a percentage of net sales
decreased from approximately 60% to approximately 34%, primarily
as a result of a change in the product mix sold.
Selling and distribution expenses for the three months ended
January 31, 1997 were $24,005 as compared with $60,319 for the
three months ended January 27, 1996. Selling and distribution
expenses include, among other things, sales commissions, certain
display costs, and net shipping expenses which are a function of
the volume of net sales. The overall dollar decrease in selling
and distribution expenses is primarily attributable to a
reduction in discretionary selling expenses.
General and administrative expenses for the three months
ended January 31, 1997 were $197,996, as compared with $216,492
for the three months ended January 27, 1996. General and
administrative expenses have decreased because of the reduction
in payroll and other office expenses necessitated by lower
business activity and because of the consolidation efforts in
order to reduce its overhead.
Design and development expenses for the three months ended
January 31, 1997 were $23,122 as compared with $33,447 for the
three months ended January 27, 1996. Design and development
expenses have decreased since the majority of the design work
required to produce product for the major sports leagues and
colleges has been completed.
Royalty and license expenses for the three months ended
January 31, 1997 were $12,221 as compared with $16,758 for the
three months ended January 27, 1996. The Company expenses
royalties in the period in which the related sales are generated.
Additional amounts to satisfy required minimum guaranteed
royalties are expensed over the term of the particular license
agreements, and, therefore, do not necessarily fluctuate with
sales for the period.
Seasonality
Sales of the Company's products are correlated with the
visibility of the various proprietary marks and their owners. To
ensure timely shipment, the Company holds substantial amounts of
inventory during periods of low sales activity. The capital
necessary to hold such inventory may restrict the funds available
for other corporate purposes.
Financial Condition
Cash and cash equivalents at January 31, 1997 were $1,547 as
compared with $30,337 at April 29, 1996, a decrease of $28,790.
The decrease is primarily the result of $677,118 being used for
operating activities offset by $642,202 of financing activities,
consisting primarily of advances from related parties and
proceeds received from the sale of warrants and issuance of
common stock.
Due to related parties at January 31, 1997 was $259,580 as
compared to $694,825 at April 29, 1996, a decrease of $435,245.
During the nine months ended January 31, 1997, $538,350 of due to
related parties was converted into 1,219,029 shares of Common
Stock and $88,690 of due to related parties was converted into
88,690 shares of Preferred Stock.
In July 1996, a group of investors purchased warrants from
the Company at $.05 per warrant entitling the holders to purchase
1,433,333 shares of the Company's Common Stock at $.70 per share.
The warrants are exercisable for six months. During July,
warrants to purchase 254,760 shares were exercised. As a result
of these transactions, the Company received gross proceeds of
$250,000. The remaining warrants to purchase shares of common
stock expired January 1997.
At the Company's present level of sales, the Company does
not have and is not generating sufficient funds from operations
or otherwise to finance its proposed plan of operations for the
next twelve months. To finance its operations, the Company hopes
to generate sufficient sales as a result of both internal growth
and the acquisitions in order to cover its variable and fixed
operating costs through at least the year ending April 30, 1997.
However, there can be no assurance that the Company will be able
to increase its sales quickly enough, or ever, to a level that
generates a positive cash flow. Moreover, if the Company can not
generate sufficient funds to cover its fixed and variable costs
through such period, as a result of among other things,
unanticipated expenses, problems or difficulties, the Company
could be required to seek alternative sources of capital or have
to curtail or cease its operations. The Company may attempt to
raise such funds from private and public sources. The Company may
raise funds through additional equity financing, debt financing
or some form of collaborative arrangement. Excluding related
party loans, the Company has not identified or secured additional
sources of financing. There is no assurance that any such
financing will be available on commercially reasonable terms or
at all. The Company's inability to obtain future financing on
terms acceptable to the Company would have a material adverse
affect on the Company's operations.
UNIVERSAL HEIGHTS, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
In February, 1997, the Company issued 1,000,000 warrants to
purchase Common Stock at $.75 and 1,000,000 warrants to purchase
the Company's Common Stock at $1.25 to a consultant for financial
consulting services. The warrants expire March 1, 2000.
In February, 1997, the Company issued 35,000 and 35,000
shares of its Common Stock at a price per share of $2.00 to two
consultants in exchange for legal and financial services.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
UNIVERSAL HEIGHTS, INC.
/s/ Bradley I. Meier
BRADLEY I. MEIER,
President
DATE: March 13, 1997
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<FISCAL-YEAR-END> APR-30-1997 APR-30-1997
<PERIOD-END> JAN-31-1997 JAN-31-1997
<CASH> 1,547 1,547
<SECURITIES> 0 0
<RECEIVABLES> 4,820 4,820
<ALLOWANCES> (10,168) (10,168)
<INVENTORY> 816,722 816,722
<CURRENT-ASSETS> 1,151,965 1,151,965
<PP&E> 400,097 400,097
<DEPRECIATION> (320,431) (320,431)
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500 500
<COMMON> 33,155 33,155
<OTHER-SE> 975,956 975,956
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<OTHER-EXPENSES> 771,150 257,345
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<INTEREST-EXPENSE> (9,280) (3,179)
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<INCOME-CONTINUING> (690,477) (242,548)
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