SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
(AMENDMENT NO. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 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 400 A
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 I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited, condensed consolidated financial statements of
the Company have been prepared in accordance with the instructions to Form
10-QSB and, therefore, omit or condense certain footnotes and other information
normally included in financial statements prepared in accordance with generally
accepted accounting principles. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the financial information for the interim periods reported have been made.
Results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results for the year ending December 31, 1998.
2
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UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Equity securities available for sale at cost which approximates $ 354,005
fair value
Cash and cash equivalents 6,551,008
Prepaid reinsurance premiums 1,024,548
Receivables:
Reinsurance Recoverable on Losses 262,742
Other Receivables 12,655
Property and equipment, net 6,661
Deposits 10,316
Insurance License Acquisition Costs 151,461
Cash restricted for regulatory capitalization requirements 5,300,000
---------
Total Assets $ 13,673,396
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses $ 525,483
Unearned premiums 5,800,233
Accounts payable 856,064
Other accrued expenses 734,109
Due to related parties 369,563
Total Liabilities 8,285,452
STOCKHOLDERS' EQUITY:
Cumulative preferred stock, $.01 par value, 1,000,000 shares 1,387
authorized, 138,640 shares issued and outstanding
Common stock, $.01 par value, 20,000,000 shares authorized, 146,776
14,677,600 shares issued
Additional paid-in capital 14,793,571
Accumulated deficit (9,553,790)
Total Stockholders' Equity 5,387,944
Total Liabilities and Stockholders' Equity $ 13,673,396
============
</TABLE>
3
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, April 30,
------------- --------------
1998 1997
------------- --------------
<S> <C> <C>
PREMIUMS EARNED AND OTHER REVENUES
Assumed $ 1,571,076 $ -
Reinsurance ceded (769,486) -
Net 801,590 -
Net investment income 92,117 -
Other income (expense) 3,065 (6,633)
------------- --------------
Total Revenues 896,772 (6,633)
------------- --------------
OPERATING COSTS AND EXPENSES:
Losses and loss adjustment expenses 310,932 -
General and administrative expenses 213,009 100,226
------------- --------------
Total Operating Expenses 523,941 100,226
------------- --------------
INCOME FROM CONTINUING OPERATIONS 372,831 (106,859)
DISCONTINUED OPERATIONS:
Loss from operations of the sports novelty and souvenir
business (188,551)
Loss on disposal of sports novelty and souvenir business - (1,387,575)
------------- --------------
Loss from Discontinued Operations - (1,576,126)
------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES 372,831 (1,682,985)
Federal income tax provision - -
------------- --------------
NET INCOME (LOSS) $372,831 $ (1,682,985)
========= =============
INCOME (LOSS) PER COMMON SHARE:
Basic and diluted:
Income (loss) from continuing operations $ 0.03 $(0.06)
Income (loss) from discontinued operations - (0.89)
-- ------
Net income (loss) $ 0.03 $(0.95)
======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 14,615,834 1,767,373
=========== =========
</TABLE>
4
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net income $372,831
Add (deduct):
Adjustments to reconcile net income to cash provided by operations:
Amortization and depreciation 28,397
Net change in non-cash balances relating to operations:
Other receivables and deposits (254,419)
Organization costs (40,520)
Prepaid reinsurance premiums (1,024,548)
Accounts payable (174,021)
Accrued expenses 437,717
Unpaid losses and loss adjustment expenses 525,483
Unearned premiums 5,800,233
Due to related parties and other (43,598)
Net cash provided by operating activities 5,627,555
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equity securities (354,005)
Net cash used in investing activities (354,005)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 105,040
-------
Net cash provided by financing activities 105,040
-------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,378,590
CASH AND CASH EQUIVALENTS, Beginning of Period 1,172,418
---------
CASH AND CASH EQUIVALENTS, End of Period $6,551,008
==========
</TABLE>
5
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
Universal Heights, Inc. ("Company") and its wholly-owned subsidiary, Universal
Property & Casualty Insurance Company ("UPCIC"). All intercompany accounts and
transactions have been eliminated in consolidation.
UPCIC's application to become a Florida licensed property and casualty insurance
company was filed in May 1997 with the Florida Department of Insurance ("DOI")
and approved on October 29, 1997. In 1998, the subsidiary began operations
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 for 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.
No income taxes have been provided as the Company has utilized loss
carryforwards.
On March 10, 1998, the Company made a decision to change its accounting fiscal
year end from April 30 to December 31 and in February 1998 commenced its
insurance business. As a result of the change in accounting year, the
three-month period ended April 30, 1997 has been presented for comparative
purposes.
The consolidated balance sheet of the Company and UPCIC, as of March 31, 1998,
and the related consolidated statements of operations and cash flows for the
three months ended March 31, 1998 and April 30, 1997 are unaudited.
6
<PAGE>
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES, Continued
The interim financial statements reflect 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 and this should be read in
conjunction with the Company's annual statements.
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.
The fair value of all financial instruments and investments consist of cash and
cash equivalents and approximate the carrying value at March 31, 1998. Cash and
cash equivalents approximate fair value due to their short-term nature. Loans
payable approximate fair value due to their variable rate.
NOTE 2 - INSURANCE OPERATIONS
The Company maintains its records in conformity with the accounting practices
prescribed or permitted by the Insurance Department of the State of Florida. To
the extent that certain of these practices differ from generally accepted
accounting principles ("GAAP"), adjustments have been made in order to present
the accompanying financial statements on the basis of GAAP.
The preparation of financial statements in conformity with GAAP 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.
UPCIC commenced its insurance activity in February 1998 by assuming policies
from the JUA. UPCIC received the unearned premiums and is servicing such
policies. Unearned premiums represent amounts that UPCIC would refund
policyholders if their policies were canceled. UPCIC has acquired policies from
the JUA at various stages in the life of such policies. Accordingly, UPCIC
determines unearned premiums by calculating the pro-rata amount that would be
due to the policyholder at a given point in time based upon the premiums owed
over the life of each policy. At March 31, 1998, the Company recorded $5,800,233
in connection with unearned premiums.
UPCIC's obligation for liabilities for policies assumed from the JUA begins at
11:59 p.m. on the date of assumption of the policies. Neither the Company nor
UPCIC has no liability for assumed policies prior to the assumption date nor
does the Company or UPCIC have any liability for claims made to the JUA.
Similarly, the JUA has no liability for assumed liabilities subsequent to the
assumption date.
7
<PAGE>
NOTE 2 - INSURANCE OPERATIONS, Continued
The Company incurred $151,461 in legal costs in connection with the Company's
efforts to acquire the insurance license from the DOI for the insurance
subsidiary. The Company has amortized the costs associated with acquiring the
insurance license over a five year period and, therefore, has not expensed such
costs to date as they benefit future periods.
The insurance subsidiary's chief executive officer is affiliated with companies
that provide the Company with management and personnel for the subsidiary's
underwriting claims and financial requirements, together with support offices,
equipment and services. The fees for such services for the three months ended
March 31, 1998 have been recorded at $300,000 based on Company calculations and
concurrence of Company counsel. These affiliated companies have invoiced
approximately $840,000 for these services which is being disputed.
The JUA's incentive program (Note 1) has provided approximately $1,700,000 to an
escrow account. These funds will be released to UPCIC when certain conditions
are met including assuming and maintaining for a three-year period a minimum
number of policies acquired from the JUA. The escrow account is not included in
the financial statements.
Premiums earned/received from the JUA are included in earnings evenly over the
terms of the policies. UPCIC does not have policies that provide for retroactive
premium adjustments.
Policy acquisition costs, consisting of commissions and other costs that vary
with and are directly related to the production of business, net of ceding
commissions will be deferred and amortized over the terms of the policies, but
only to the extent that unearned premiums are sufficient to cover all related
costs and expenses. At March 31, 1998, there were no policy acquisition costs.
An allowance for uncollectible premiums receivable will be established when it
becomes evident collection is doubtful.
Claims and claim adjustment expenses, less related reinsurance, are provided for
as claims are incurred. The provision for unpaid claims and claim adjustment
expenses includes: (1) the accumulation of individual case estimates for claims
and claim adjustment expenses reported prior to the close of the accounting
period; (2) estimates for unreported claims based on past experience modified
for current trends; and (3) estimates of expenses for investigating and
adjusting claims based on past experience.
Liabilities for unpaid claims and claim adjustment expenses are based on
estimates of ultimate cost of settlement. Changes in claim estimates resulting
from the continuous review process and differences between estimates and
ultimate payments are reflected in expense for the year in which the revision of
these estimates first became known.
8
<PAGE>
NOTE 2 - INSURANCE OPERATIONS, Continued
UPCIC estimates claims and claims expenses based on historical experience of
similar entities and payment and reporting patterns for the type of risk
involved. These estimates are reviewed quarterly by UPCIC's affiliated
management professionals and any resulting adjustments are reflected in
operations for the period in which they are determined.
Inherent in the estimates of ultimate claims are expected trends in claim
severity, frequency and other factors that may vary as claims are settled. The
amount of uncertainty in the estimates for casualty coverage is significantly
affected by such factors as the amount of historical claims experience relative
to the development period, knowledge of the actual facts and circumstances, and
the amount of insurance risk retained.
In the normal course of business, UPCIC seeks to reduce the loss that may arise
from catastrophes or other events that cause unfavorable underwriting results by
reinsuring certain levels of risk in various areas of exposure with other
insurance enterprises or reinsurers.
NOTE 3 - REVENUE RECOGNITION
Amounts recoverable from reinsurers are estimated in a manner consistent with
the reinsurers policy. Reinsurance premiums, losses and loss adjustment expenses
("LAE") are accounted for on bases consistent with those used in accounting for
the original policies issued and the terms of the reinsurance contracts.
Reinsurance ceding commissions received are deferred and amortized over the
effective period of the related insurance policies.
UPCIC limits the maximum net loss that can arise from large risks or risks in
concentrated areas of exposure by reinsuring (ceding) certain levels of risks
with other insurers or reinsurers, either on an automatic basis under general
reinsurance contracts known as "treaties" or by negotiation on substantial
individual risks. The reinsurance arrangements are intended to provide UPCIC
with the ability to maintain its exposure to loss within its capital resources.
Such reinsurance includes quota share, excess of loss and catastrophe forms of
reinsurance.
Effective February 1, 1998, UPCIC entered into quota share, excess per risk and
excess catastrophe agreements with various reinsurers, rated A- or better by
A.M. Best. Under the quota share treaty, UPCIC cedes fifty percent of its gross
written premiums, losses and loss adjustment expenses with a ceding commission
of twenty-seven percent. Under the excess per risk agreement, UPCIC obtained
coverage of $1,250,000 in excess of $500,000 ultimate net loss for each risk,
each loss, excluding losses arising from wind. A $2,500,000 limit applies to any
one loss occurrence. Under the excess catastrophe reinsurance contract, UPCIC
obtained coverage of $23,300,000 in excess of $2,000,000.
9
<PAGE>
NOTE 3 - REVENUE RECOGNITION, continued
The ceded reinsurance arrangements had the following effect on certain items in
the accompanying consolidated financial statements:
PREMIUMS:
WRITTEN EARNED
Assumed $ 7,371,309 $ 1,571,076
Ceded 3,854,494 769,486
--------- ------------
Net $ 3,516,815 $ 801,590
=========== ============
OTHER AMOUNTS:
Reinsurance Recoverable on Losses $ 262,742
Unearned Premiums Reserve Ceded $ 3,085,009
UPCIC's reinsurance contracts do not relieve UPCIC from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to UPCIC; consequently, allowances are established for amounts deemed
uncollectible. UPCIC evaluates the similar geographic regions, activities, or
economic characteristics of the reinsurers to minimize its exposure to
significant losses from reinsurer insolvencies. UPCIC currently has reinsurance
contracts with various reinsurers located throughout the United States and
internationally. UPCIC believes that this distribution of reinsurance contracts
adequately minimizes the UPCIC's risk from any potential operating difficulties
of its reinsurers.
NOTE 4 - 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 to purchase common
stock at $1.00 per share, the quoted market value to an existing shareholder on
January 16, 1998. 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 Hermitage at an exercise price of $.75 per share and have
been valued at $.35 per warrant using a Black-Scholes formula and is being
10
<PAGE>
NOTE 4 - ISSUANCE OF STOCK, continued
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. On March 31, 1998, the Company issued 300,000 warrants
to Fortress Financial Group. The value attributable to these warrants,
approximately $.35 per warrant, will be charged to operations commencing April
1, 1998. On May 7, 1998, the Company granted 1,050,000 options to officers and
directors to purchase stock at $1.63 per share, the quoted market price at that
date.
NOTE 5 - DISCONTINUED OPERATIONS
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. The losses are
reflected in the three months ended April 30, 1997. 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. Accordingly, all remaining costs
attributable to the disposition of inventories were written off at December 31,
1997 and the Company has provided for additional costs of approximately $100,000
related to its discontinued operations.
NOTE 6 - 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. For the
period ended March 31, 1998, there were no items as defined in FAS 130 that
should be reported separately. In the future, if the Company accumulates an
investment portfolio and has unrealized holding gains or losses, other
comprehensive income will be reported pursuant to FAS 130.
Also in June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 130 establishes reporting
11
<PAGE>
NOTE 6 - RECENTLY ADOPTED ACCOUNTING STANDARDS, continued
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 sets criteria for reporting disclosures about a company's products and
services, geographic areas and major customers.
12
<PAGE>
ITEM 2. 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. UPCIC received on December 31,
1997 a license to engage in underwriting homeowners insurance in the state of
Florida.
The Florida Department of Insurance requires applicants to have a
minimum capitalization of $5.3 million to be eligible to operate as an insurance
company in the state of Florida. Upon being issued an insurance license,
companies must maintain capitalization of at least $4 million. If an insurance
company's capitalization falls below $4 million, then the company will be deemed
out of compliance with DOI requirements, which could result in revocation of the
participant's license to operate as an insurance company in the state of
Florida. The Company's insurance subsidiary will maintain a separate account to
hold the minimum continued capitalization required.
The Company intends to continue to devote its efforts to the business
plan for UPCIC and has entered into agreements with the JUA whereby since
February 1998 UPCIC has assumed and is currently servicing over 28,000 policies.
These policies, if renewed, represent approximately $26,000,000 in estimated
annual gross direct written premium revenues. In addition, UPCIC has received
approximately $89 per policy in bonus incentive money paid to UPCIC by the JUA
for assuming the policies. The bonus money must be maintained in an escrow
account for 3 years. UPCIC must maintain the policies from the JUA for the 3
year period at which point UPCIC will receive the bonus money.
13
<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 has 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 AND CASH EQUIVALENTS at March 31, 1998 aggregated $6,551,000. The
source of liquidity for possible claims payments consists of net premiums, after
deductions for expenses.
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
bonuses. UPCIC currently has obtained approximately 28,000 policies from the JUA
and the JUA has granted UPCIC approval to receive up to 30,000 policies. UPCIC
expects to obtain most, if not all, of the 30,000 policies for which it has been
granted approval to receive under the JUA program. The Company believes that
this base of insurance business will provide opportunities for UPCIC to solicit
renewals of premiums in future periods which, if obtained, would allow UPCIC to
develop its insurance business beyond the next twelve months. The renewal rate
of policies acquired by UPCIC is approximately eighty percent. Although there is
no assurance that policy renewals will continue at this rate, UPCIC is
negotiating with insurance agents that are currently writing business in
connection with the JUA policies in an effort to obtain policy renewals. The
company is also seeking to establish relationships with insurance agents outside
of the JUA program to write new business.
To continue to grow its insurance operations, UPCIC can also obtain
policies in the open market and, upon achieving certain additional
capitalization requirements, UPCIC may request permission from the JUA and the
DOI to increase the number of policies that UPCIC can obtain under the JUA
program. To date UPCIC has not sold policies in the open market; however, UPCIC
expects to do so beginning in July 1998. In determining appropriate guidelines
for such open market policy sales, UPCIC plans to employ standards similar to
those used by UPCIC when selecting policies from the JUA.
14
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS
ENDED APRIL 30, 1997
The operations for the three months ended March 31, 1998 consist of the
Company's newly started insurance business, accordingly, the operations are not
comparative to the previous period as there were no insurance operations
previously and the Company's former souvenir business was discontinued.
On February 1, 1998, the Company began recognizing earned premiums on
insurance contracts acquired from JUA. Income is recognized evenly over the
terms of policies. The Company recognized revenues of $802,000 after reinsurance
on approximately 28,000 policies. See MD&A section entitled, "Financial
Condition - Cash and Cash Equivalents" for a discussion of the short-term and
long-term resources for the insurance subsidiary.
The Company's investment income represents primarily interest income of
$92,000 in cash and cash equivalents at March 31, 1998 aggregating $6,551,000.
Such funds were received for advance premiums and from the Company's private
offering.
As a result of a change in the Company's year end, the Company presented
the three months ended April 30, 1997 (the fourth quarter of its last fiscal
year) as comparatives.
15
<PAGE>
UNIVERSAL HEIGHTS, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 15, 1997, two former employees of the Company, Johnny 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 Plaintiffs demanded 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. On March 31, 1998, the Company issued 300,000 warrants to purchase Common
Stock at an exercise price of $1.00 per share and $60,000 to Fortress Financial
Group for investment banking services with respect to retail investors. In
addition, on May 7, 1998, the Company granted an aggregate of 1,050,000 options
to purchase shares of Common Stock to the officers and directors of the Company
at an exercise price of $1.63 per share, the quoted market price at that date.
The shares of Common Stock and warrants and options 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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UNIVERSAL HEIGHTS, INC.
PART II - OTHER INFORMATION
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.
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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 11, 1998 /s/ Bradley I. Meier
---------------------------------
Bradley I. Meier, President
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