SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
(Amendment No. 2)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 31, 1998
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.)
2875 N.E. 191 Street
Suite 400A
Miami, Florida 33180
(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 1, 1998: 14,677,604.
Transitional Small Business Disclosure Format Yes / / No /X/
<PAGE>
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, 1998 are not
necessarily indicative of the results for the year ending April 30, 1998.
<TABLE>
<CAPTION>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
January 31, April 30,
1998 1997
(Unaudited) (Audited)
------------- ------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 786,192 $ 35,269
Prepaid expense 275,000 2,502
Deposits 10,316 9,816
Assets from discontinued operations 29,814 592,367
Cash restricted for regulatory
capitalization requirements 5,300,000 --
Other Assets 216,738 --
------------ ------------
Total Current Assets $ 6,618,060 $ 639,954
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 948,079 $ 987,619
Accrued expenses 334,727 199,050
Due to related parties 399,444 305,678
Other 6,931 15,344
------------ ------------
Total Current Liabilities $ 1,689,181 1,507,691
============ ============
STOCKHOLDERS' EQUITY (DEFICIENCY):
Cumulative preferred stock, $.01 per
value; 1,000,000 shares authorized;
138,640 shares issued and outstanding 1,387 1,387
Common Stock, $.01 par value,
20,000,000 shares authorized
14,677,604 shares issued at
January 31, 1997 and 3,229,442 at April
30, 1997 and outstanding 146,326 32,294
Additional paid-in capital 14,819,981 7,867,748
Accumulated deficit (10,037,915) (8,722,166)
Subscriptions receivable -- (47,000)
------------ ------------
Total Stockholders' Equity (Deficiency) 4,929,779 (867,737)
------------ ------------
Total Liabilities and Stockholders'
Equity (Deficiency) $ 6,618,960 $ 639,954
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
2
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JANUARY 31, 1998
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
January 31, January 31,
------------------------------ -----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING EXPENSES
General and administrative $ (727,290) $ (608,462) $ (81,184) $ (197,996)
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (727,290) (608,462) (81,184) (197,996)
OTHER INCOME & EXPENSES
Interest income 54,667 925 54,667 --
Interest expense (5,122) (9,280) (2,133) (3,550)
Total Other Income (Expense) 49,545 (8,355) 52,534 (3,550)
LOSS FROM CONTINUING OPERATIONS (677,745) (616,817) (28,650) (201,546)
----------- ----------- ----------- -----------
DISCONTINUED OPERATIONS:
Loss from operations and disposal
of Sports Novelty and Souvenir (637,877) (73,660) (479,153) (41,002)
----------- ----------- ----------- -----------
NET LOSS $(1,315,622) $ (690,477) $ (507,803) $ (242,548)
=========== =========== =========== ===========
LOSS PER COMMON SHARES:
Basic
Loss from continuing operations $ (0.12) $ (0.21) $ 0.01 $ (0.07)
Loss from discontinued operations (0.11) (0.02) (0.05) (0.01)
----------- ----------- ----------- -----------
NET LOSS $ (0.23) $ (0.23) $ (0.06) $ (0.08)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 5,637,000 2,968,000 9,028,000 3,220,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
3
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Nine Months Ended
January 31,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
CONTINUING OPERATION:
Net loss from continuing operations $ (677,745) $ (616,817)
Adjustments to reconcile net
loss from continuing operations
to net cash used in continuing
operations:
Stock issued for services 184,201 --
Interest on convertible debt -- --
Change in assets and liabilities:
Decrease in deposits -- --
----------- -----------
Net cash used in continuing operations (493,544) (616,817)
----------- -----------
DISCONTINUED OPERATIONS:
Loss from discontinued operations (637,877) (73,660)
Adjustments to reconcile loss
from discontinued operations to net
cash used in discontinued operations:
Stock issued for services 88,750 (20,034)
Depreciation and amortizaon 35,752 --
Provision for doubtful accounts -- 86,207
Write down of inventories to net
realizable value 138,324 --
Loss on disposal of property,
equipment and patents 250,257 --
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable -- 70,282
Inventories 140,198 (11,390)
Other current assets (427,741) (113,366)
Increase in:
Accounts payable and accrued expenses 235,528 1,660
----------- -----------
Net cash provided by (used in)
discontinued operations (176,809) (60,301)
----------- -----------
Net cash used in operating activities (670,353) (677,118)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment -- (7,647)
Acquisition of patents and trademarks -- 13,773
Acquisition of businesses -- --
Deposit for regulatory capitalization
requirements (5,300,000) --
----------- -----------
Net cash used in investing activities (5,300,000) 6,086
----------- -----------
The accompanying notes to consolidated financial statements are in integral part
of these statements.
4
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOW (Continued)
(Unaudited)
Nine Months Ended
January 31, January 31,
1998 1997
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common
stock 6,717,189 460,000
Net repayments under line of credit -- --
Advances from stockholders 12,500 191,796
Issuance of related party loans -- --
Repayment of loans payable -- --
Payment on capital lease obligations (8,413) (9,594)
----------- -----------
Net cash provided by financing activities 6,721,276 642,202
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 750,923 (28,830)
CASH AND CASH EQUIVALENTS,
Beginning of Period 35,269 30,337
----------- -----------
CASH AND CASH EQUIVALENTS,
End of Period $ 786,192 $ 1,507
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ 4,155 $ 8,831
=========== ===========
SUPPLEMENTAL NONCASH FINANCING AND
INVESTING ACTIVITIES
Common stock issued in exchange
for debt $ 58,125 $ 259,767
=========== ===========
Common stock issued in exchange
for services $ 206,951 $ 288,300
=========== ===========
Common stock issued in exchange
for acquisitions $ -- $ 735,728
=========== ===========
Write-off of fully depreciated
fixed assets: $ 184,447 $ 510,524
=========== ===========
The accompanying notes to consolidated financial statements are in integral part
of these statements.
5
<PAGE>
UNIVERSAL HEIGHTS, INC.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1998
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Universal Property & Casualty
Insurance Company. All intercompany accounts and transactions have been
eliminated in consolidation.
The Company formed a wholly-owned subsidiary, Universal Property &
Casualty Insurance Company. The subsidiary's application to become a Florida
licensed property and casualty insurance company was filed in May 1997 with the
Florida Department of Insurance and approved on October 29, 1997. In 1998, the
subsidiary began operation through the acquisition of homeowner insurance
policies issued by the Florida Residential Property and Casualty Joint
Underwriting Association ("JUA").
The JUA was established in 1992 as a temporary measure to provide
insurance coverage for individuals who could not obtain coverage from private
carriers because of the impact on the private insurance market of Hurricane
Andrew in 1992. Rather than serving as a temporary source of emergency insurance
coverage as was originally intended, the JUA has become a major provider of
original and renewal insurance coverage of Florida residents. In an attempt to
reduce the number of policies in the JUA, and thus the exposure of the program
to liability, the Florida legislature has approved a number of initiatives to
depopulate the JUA, which to date has resulted in policies being acquired by
private insurers and provides additional incentives to private insurance
companies to acquire policies from the JUA.
On December 4, 1997, the Company raised approximately $6,700,000 in a
private offering with various institutional and/or otherwise accredited
investors pursuant to which the Company issued, in the aggregate, 11,208,996
shares of its Common Stock at a price of $.60 per share. The proceeds of this
transaction are being used partially for working capital purposes and to meet
the minimum regulatory capitalization requirements ($5,300,000) required by the
Florida Department of Insurance to engage in this type of homeowners insurance
company business.
The consolidated balance sheet of Universal Heights, Inc. and Subsidiary
(the "Company"), as of January 31, 1998, and the related consolidated statements
of operations and cash flows for the period ended January 31, 1998 and 1997 are
unaudited. The consolidated balance sheet as of April 30, 1997 has been derived
from audited financial statements. The consolidated financial statements should
be read in conjunction with the audited financial statement and footnotes of the
year ended April 30, 1997, included in the Company's report on Form 10-KSB.
The interim financial statement reflects all adjustments (consisting of
only normal and recurring accruals and adjustments) which are, in the opinion of
management, necessary to a fair statement of the results for the interim periods
presented. The Company's operating results for any particular interim period may
not be indicative of results for the full year.
6
<PAGE>
UNIVERSAL HEIGHTS, INC.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Certain reclassifications have been made in the 1997 financial statements
to conform them to and make them consistent with the presentation used in the
1998 financial statements.
On March 10, 1998, the Company made a decision to change its accounting
fiscal year end from April 30 to December 31.
NOTE 2 - ISSUANCE OF STOCK
On January 14, 1998, the Company agreed to issue 45,000 shares of Common
Stock of the Company at a price of $1.00 per share to Sherman and Fischman, P.A.
with whom the Company has had an ongoing professional relationship, in
consideration for services previously rendered to the Company. These shares were
not issued until March 1998. The Company also issued 600,000 warrants on January
16, 1998 to purchase common stock at $1.00 per share, the quoted market value.
These warrants were issued for accrued legal services which were valued at
$60,000. In addition, pursuant to an investment banking agreement dated December
24, 1997 between the Company and Hermitage Capital Corp. ("Hermitage"), the
Company agreed to issue 200,000 warrants to purchase shares of Common Stock to
7
<PAGE>
Hermitage at an exercise price of $.75 per share and have been valued at $.35
per share using a Black-Scholes formula and is being amortized over twelve
months. The issuance of shares of Common Stock and warrants to purchase Common
Stock in each of the above transactions were issued pursuant to an exemption
from registration under Section 4(2) of the Securities Act of 1933, as amended.
NOTE 3 - DISCONTINUED OPERATIONS
As of April 30, 1997, the Company ceased all marketing efforts of its core
souvenir business and sports related products and at the time, estimated the
loss on disposed of inventories and patents at approximately $1,388,000.
Subsequently, management's efforts were spent on raising capital for its new
insurance business and was unable to close out the inventory and patents for the
expected realizable amounts. In February 1998, the Company determined that its
efforts to commence and coordinate the insurance activity would be more
beneficial to the Company and abandoned its efforts to pursue further recoveries
of its former business. Management disposed of its sports-related products
inventory at closeout prices resulting in losses of an additional $280,000. In
addition, recovery of the remainder of the patents could result in litigation.
Accordingly, all remaining costs attributable to this $200,000 have been
currently written off and the Company has provided for additional costs of
approximately $158,000 related to its discontinued operations.
NOTE 4 - RECENTLY ADOPTED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, REPORTING
COMPREHENSIVE INCOME, which establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and losses)
in financial statements. In addition, SFAS No. 130 requires the Company to
classify items of other comprehensive income by their nature in a separate
financial statement or as a component of the statement of operations or the
statement of shareholders' equity and display the accumulated balance of other
comprehensive income separately in the shareholders'equity section of the
consolidated balance sheets. The Company adopted SFAS No. 130 on January 1, 1998
as required.
Also, in June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes
reporting standards for public companies concerning annual and interim financial
statements of their operating segments and related information. Operating
segments are components of a company about which separate financial information
is available that is regularly evaluated by the chief operating decision
maker(s) in deciding how to allocate resources and assess performance. The
standard set criteria for reporting disclosures about a company's products and
services, geographic areas and major customers.
8
<PAGE>
Item 6. Management's Discussion And Analysis or Plan of Operation
The following discussion and analysis of the Company's consolidated
financial condition and results of operations should be read in conjunction with
the Company's Condensed Consolidated Financial Statements and Notes thereto.
This document may contain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements.
Overview
As previously disclosed in the Company's annual report on Form 10-KSB for
the year ended April 30, 1997 ("Annual Report") filed with the Securities and
Exchange Commission on August 13, 1997 and as amended on October 14, 1997, the
Company has begun to implement its plan to become a financial services company
and, through its wholly-owned insurance subsidiary, Universal Property &
Casualty Company ("UPCIC"), has positioned itself to take advantage of what
management believes to be profitable business and growth opportunities in the
marketplace.
On October 29, 1997, the Florida Department of Insurance ("DOI") approved
the Company's application for a permit to organize UPCIC as a domestic insurance
company in the State of Florida. On December 4, 1997, the Company raised
approximately $6.72 million in a private offering with various institutional
and/or otherwise accredited investors pursuant to which the Company issued, in
the aggregate, 11,208,996 shares of its Common Stock at a price of $.60 per
share ("Private Offering"). The proceeds of the Private Offering have been used
to meet the minimum regulatory capitalization requirements ($5,300,000) required
by the DOI to obtain an insurance company license and for general working
capital purposes. The Company received on December 31, 1997 a license to engage
in underwriting homeowners insurance in the state of Florida.
The Company intends to continue to devote its efforts to the business plan
for UPCIC and has entered into agreement with the JUA whereby since February
1998 the Company has assumed and is currently servicing over 27,000 policies.
These policies, when renewed, represent approximately $26,000,000 in estimated
annual gross direct written premium revenues. In addition, the Company has
received approximately $89 per policy in bonus incentive money paid to the
Company by the JUA for assuming the policies. The bonus money must be maintained
in an escrow account for 3 years. The Company must maintain the policies from
the JUA for the 3 year period at which point the Company will receive the bonus
money.
9
<PAGE>
Seasonality
Sales of the Company's novelty and souvenir products were correlated with
the visibility of the various proprietary marks and their owners. The Company
has not determined the level of seasonality, if any, in the insurance business.
The Company believes that its earnings have the most potential to be effected
negatively during the hurricane windstorm season that begins June 1, 1998, and
ends November 30, 1998.
Financial Condition
Cash, cash equivalents and cash restricted for regulatory requirements at
January 31, 1998 were $6,086,192 as compared with $35,269 at April 30, 1997. The
increase is primarily the result of $6,725,380 capital raised in the Private
Offering.
Due to related parties at January 31, 1998 was $399,444 as compared to
$305,678 at April 30, 1997. The increase is due to Deferred Salary to the
President.
The Company expects that the proceeds from the Private Offering together
with the JUA premiums and renewals are sufficient to meet the Company's working
capital requirements for the next twelve months. The primary use of the Private
Offering was to provide restricted cash needed for the JUA.
The Company believes in the short-term it will continue to be able to
obtain additional policies from the JUA and continue to receive incentive
bonsues. The Company currently has obtained approximately 27,000 policies from
the JUA and can currently receive up to 30,000 policies from the JUA. To
continue to grow its insurance operations, the Company can obtain policies in
the open market and request permission from the JUA and the DOI to take more
than 30,000 policies from the JUA for which it has been approved. This base of
insurance business will also provide renewals of premiums in future periods
which should allow the Company to develop its insurance business beyond the next
twelve months.
Results of Operations -- Nine Months Ended January 31, 1998 versus January 31,
1997 (including the three month period then ended)
As of April 30, 1997, the Company ceased all marketing efforts of its souvenir
business and sports related products and at the time, estimated the loss on
disposed of inventories and patents at approximately $1,388,000. Subsequently,
management's efforts were spent on raising capital for its new insurance
business and was unable to close out the inventory and patents for the expected
realized amounts. In February 1998, the Company determined that its efforts to
commence and coordinate the insurance activity would be more beneficial to the
Company and abandoned its efforts to pursue further recoveries of its former
business. Management disposed of its remaining sports-related products inventory
at closeout prices resulting in losses of an additional $280,000. In addition,
the Company plans to dispose of its athletic glove inventory and related patents
through a settlement agreement with John Walker and Larry Martin. See "Legal
Proceedings" for a discussion of the Settlement Agreement. Accordingly, all
remaining costs attributable to the disposition of inventory equal to $200,000
have been currently written off and the Company has provided for additional
costs of approximately $158,000 related to its discontinued operations.
The majority of these costs are reflected in the three months ended
January 31, 1998. Other income increased as a result of interest income on the
proceeds from the Company's private offering relating to the insurance business.
During the three months ended January 31, 1998 the Company curtailed its
administrative office costs.
10
<PAGE>
UNIVERSAL HEIGHTS, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On May 15, 1997, two former employees of the Company, John Walker and
Larry Martin filed a lawsuit against the Company in the Circuit Court for
Pinellas County, Florida. The Plaintiffs asserted claims for an injunction and
for damages for breach of an Asset Purchase Agreement. The Complaint also
includes breach of employment agreements, breach of royalty agreements and other
relief. In connection therewith, the Plaintiff's are demanding unpaid salaries
amounting to approximately $130,000. The Company has negotiated a settlement
with the Plaintiffs pursuant to which the Plaintiffs received exclusive use of
certain patents and trademarks, the remaining inventory of weighted baseball
gloves, and 10,000 shares of Common Stock, yet to be issued.
Item 2. Changes in Securities
Pursuant to an investment banking agreement dated December 24, 1997
between the Company and Hermitage Capital Corp. ("Hermitage"), the Company
agreed to issue 200,000 warrants to purchase shares of Common Stock to Hermitage
at an exercise price of $.75 per share. The warrants issued to Hermitage have
been valued at $.35 per shares using a Black-Scholes formula and are being
amortized over twelve months. Under the investment banking agreement, Hermitage
agreed to provide the Company with certain investment banking and consulting
activities with respect to institutional investors for a one year period in
return for cash in the amount of $300,000 and the warrants. On January 14, 1998,
the Company agreed to issue 45,000 shares of Common Stock of the Company at a
price of $1.00 per share to Sherman and Fischman, P.A., with whom the Company
has had an ongoing professional relationship, in consideration for services
previously rendered to the Company. These shares were not issued until March
1998. The Company also issued 600,000 warrants to purchase common stock at $1.00
per share, the quoted market value, to an existing shareholder on January 16,
1998. The shares of Common Stock in each of the above issuance were issued
pursuant to an exemption from registration under Section 4(2) of the Securities
Act of 1933, as amended.
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
On March 13, 1998, the Company filed a current report on Form 8-K
relating to the Company's change in fiscal year end from April 30 to December
31.
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, President
-------------------------------
BRADLEY I. MEIER, President
DATE: June 2, 1998
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> APR-30-1998 APR-30-1998
<PERIOD-END> JAN-31-1998 JAN-31-1998
<CASH> 6,086,192 6,086,192
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 467,868 467,868
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 6,554,060 6,554,060
<CURRENT-LIABILITIES> 1,689,181 1,689,181
<BONDS> 0 0
0 0
1,387 1,387
<COMMON> 14,835,307 14,835,307
<OTHER-SE> (9,971,815) (9,971,815)
<TOTAL-LIABILITY-AND-EQUITY> 6,554,060 6,554,060
<SALES> 9,170 0
<TOTAL-REVENUES> 9,170 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 670,460 81,184
<LOSS-PROVISION> 637,877 479,153
<INTEREST-EXPENSE> (49,545) (52,534)
<INCOME-PRETAX> (1,249,622) (507,803)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (611,745) (28,650)
<DISCONTINUED> (637,877) (479,153)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,249,622) (507,803)
<EPS-PRIMARY> (0.22) (0.06)
<EPS-DILUTED> (0.22) (0.06)
</TABLE>
