SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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) 792-4200
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 June 30, 1998: 14,687,604.
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 six months ended June 30, 1998 are not necessarily
indicative of the results for the year ending December 31, 1998.
2
<PAGE>
<TABLE>
<CAPTION>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
June 30, December 31,
1998 1997
--------------------------------
<S> <C> <C>
Equity securities available for sale at cost which approximates fair value $ 156,460 $ -
Fixed maturity securities held-to-maturity at amortized cost which
approximates fair value 2,674,638 -
Cash and cash equivalents 3,755,712 1,172,418
Prepaid Reinsurance Premiums 5,027,165 -
Prepaid Other 254,000 -
Receivables:
Reinsurance Recoverable on Losses 1,274,130 -
Other Receivables 1,356,700 21,478
Deferred Policy Acquisition Cost 156,232 -
Property and equipment, net 4,375 9,388
Deposits 10,316 9,816
Insurance License Acquisition Costs 143,277 118,678
Cash restricted for regulatory capitalization requirements 5,300,000 5,300,000
--------- ---------
Total Assets $ 20,113,005 $ 6,631,778
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses $ 2,548,260 -
Unearned premiums 8,882,831 -
Accounts payable 1,218,542 1,030,085
Other accrued expenses 334,123 278,392
Accrued Tax, Licenses and Fees 52,500 -
Due to related parties 320,872 406,000
Other 3,182 7,161
----- -----
Total Liabilities 13,360,310 1,721,638
========== =========
STOCKHOLDERS' EQUITY:
Cumulative preferred stock, $.01 par value, 1,000,000 shares authorized, 138,640 1,387 1,387
shares issued and outstanding
Common stock, $.01 par value, 20,000,000 shares authorized, 14,687,604 shares 146,876 146,326
issued
Additional paid-in capital 14,983,471 14,688,981
Accumulated deficit (8,379,039) (9,926,554)
---------- ----------
Total Stockholders' Equity 6,752,695 4,910,140
--------- ---------
Total Liabilities and Stockholders' Equity $ 20,113,005 6,631,778
============ =========
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For Six Months Ended For Three Months Ended
June 30, July 31, June 30, July 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
PREMIUMS EARNED AND OTHER REVENUES
Premium Income $4,196,356 $ - $3,394,766 $ -
Net investment income 336,812 - 244,195 -
Other income (expense) 3,545 (8,192) 980 (1,559)
----------- ----------- ---------- -----------
Total Revenues 4,536,713 (8,192) 3,639,941 (1,559)
OPERATING COST AND EXPENSES:
Losses and loss adjustment expenses 1,628,814 - 1,317,882 -
General and Administrative expenses 1,360,383 329,165 1,147,374 228,939
--------- --------- --------- ---------
Total Operating Expenses 2,989,197 329,165 2,465,256 228,939
INCOME FROM CONTINUING OPERATIONS 1,547,516 (337,357) 1,174,685 (230,498)
DISCONTINUED OPERATIONS
Loss from operations of the sports novelty and
souvenir business - (227,322) - (38,771)
Loss on disposal of sports novelty and souvenir
business - (1,387,575) - -
------------- ----------- ------------ ----------
Loss from Discontinued Operations - (1,614,897) - (38,771)
INCOME (LOSS) BEFORE INCOME TAXES 1,547,516 (1,952,254) 1,174,685 (269,269)
Federal Income tax provision - - - -
------------- ------------ ------------ ----------
NET INCOME (LOSS) 1,547,516 (1,952,254) 1,174,685 (269,269)
=========== =========== ========== =========
INCOME (LOSS) PER COMMON SHARE:
Basic
Income (loss) from continuing operations $ 0.11 (0.10) $ 0.08 $ (0.07)
Income (loss from discontinued operations (0.47) (0.01)
--------- ----------- ------------ -----------
Net income (loss) $ 0.11 $ (0.57) $ 0.08 $ (0.08)
========== =========== ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
14,676,000 3,426,000 14,681,000 3,426,000
========== ========= ========== =========
INCOME (LOSS) PER COMMON SHARE:
Diluted
Income (loss) from continuing operations $ 0.09 $ (0.10) $ 0.07 $ (0.07)
Income (loss) from discontinued operations - (0.47) - (0.01)
------------- ------------ ------------ -----------
Net income (loss) $ 0.09 $ (0.57) $ 0.07 $ (0.08)
------------ ------------ ------------ -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
17,783,000 3,426,000 17,787,000 3,426,000
========== ============ ========== ===========
</TABLE>
4
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
JUNE 30, 1998
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 1,547,516
Add (deduct):
Adjustments to reconcile net income to cash provided
by operations:
Amortization and depreciation 84,197
Net change in non-cash balances relating to operations:
Prepaid Reinsurance Premiums (5,027,165)
Other receivables and deposits (1,335,722)
Insurance License Acquisition Costs (32,783)
Reinsurance Recoverable on Losses (1,274,130)
Deferred Policy Acquisition Cost (156,232)
Prepaid Other (150,000)
Accounts Payable 308,496
Accrued Expenses 51,752
Accrued Tax, Licenses & Fees 52,500
Unpaid losses and loss adjustment expenses 2,548,260
Unearned Premiums 8,882,831
Due to related parties and other (85,128)
-----------
Net cash provided by operating activities 5,414,392
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equity securities (156,460)
Purchase of debt securities (2,674,638)
Net cash used in investing activities (2,831,098)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,583,294
CASH AND CASH EQUIVALENTS, Beginning of Period 1,172,418
-----------
CASH AND CASH EQUIVALENTS, End of Period 3,755,712
===========
SUPPLEMENTAL NONCASH FINANCING AND INVESTING ACTIVITIES
Common Stock Issued for Liabilities $ 60,000
Valuation of Warrants Issued for Liabilities 60,000
Valuation of Warrants Issued for Prepaid Expenses 175,000
-----------
$ 295,000
===========
5
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 and
six month periods ended June 30, 1998 and July 31, 1997 have been presented for
comparative purposes.
The consolidated balance sheet of the Company, as of June 30, 1998, and the
related consolidated statements of operations for the three and six months ended
June 30, 1998 and July 31, 1997 and cash flows for six months ended June 30,
1998 and July 31, 1997 are unaudited.
6
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
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 June 30, 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
UPCIC 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 June 30, 1998, the Company recorded $8,882,831
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. UPCIC has no liability for
assumed policies prior to the assumption date nor does 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>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
NOTE 2 - INSURANCE OPERATIONS, Continued
The Company incurred $151,461 in legal costs in connection with UPCIC's efforts
to acquire the insurance license from the DOI for the insurance subsidiary. The
Company is amortizing 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 six months ended June
30, 1998 have been recorded at $243,768.
The JUA's incentive program (Note 1) has provided approximately $2,700,000 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 June 30, 1998, deferred policy acquisition costs amounted
to $156,232.
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>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
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 the peril of 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>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
NOTE 3 - REVENUE RECOGNITION, continued
Effective June 1, 1998, with respect to losses arising out of loss occurrences
commencing on or after that date, the Company obtained coverage of $41,000,000
in excess of $2,000,000. UPCIC also has coverage from the Florida Hurricane
Catastrophe Fund, which is estimated to be $38,000,000. In addition, in the
event a hurricane were to decrease the limits of catastrophe cover, UPCIC has
purchased contingency coverage to replace the Florida Hurricane Catastrophe
Cover for 90% of losses of $42,300,000 in excess of $42,300,000 otherwise
recoverable excess of $10,600,000.
The ceded reinsurance arrangements had the following effect on certain items in
the accompanying consolidated financial statements:
PREMIUMS:
Written Earned
------- ------
Direct $ 2,289,024 $ 88,833
Assumed 12,995,102 6,880,324
Ceded (8,760,239) (2,772,801)
----------- -----------
Net $ 6,523,887 $ 4,196,356
=========== ===========
OTHER AMOUNTS:
Reinsurance Recoverable on Losses $1,274,130
Unearned Premiums Reserve Ceded $4,781,364
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 UPCIC's risk from any potential operating difficulties of
its reinsurers.
10
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
NOTE 4 - ISSUANCE OF STOCK
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. In
connection with a Settlement Agreement and Mutual Release described more fully
in Part II, Item 1 "Legal Proceedings" below, the Company issued an aggregate of
10,000 shares, at a fair market value of $1.50 per share, to the Plaintiffs
involved in the claim. In addition, pursuant to an agreement approved by the
board of directors on July 9, 1998 between the Company and Value Management
Research ("Value Management"), the Company agreed to issue 100,000 warrants to
purchase shares of common stock to Value Management at an exercise price of
$2.00 per share in connection with investor relation services. The fair value
attributable to operations for these warrants is approximately $159,000.
NOTE 5 - 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 June 30, 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
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.
11
<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
The Company has continued to implement its plan to become a financial
services company and, through its wholly-owned insurance subsidiary, Universal
Property & Casualty Company ("UPCIC"), has begun to take advantage of what
management believes to be profitable business and growth opportunities in the
marketplace.
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.
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
12
<PAGE>
Florida. The Company's insurance subsidiary will maintain a separate account to
hold the minimum continued capitalization required.
UPCIC's initial business and operations consist of providing property and
casualty coverage through homeowners' insurance policies acquired through the
JUA. UPCIC has entered into agreements with the JUA whereby since February 1998
UPCIC has assumed and is currently servicing over 29,000 policies. These
policies, if renewed, represent approximately $27,000,000 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.
SEASONALITY
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 June 30, 1998 aggregated $3,755,712. The
source of liquidity for possible claims payments consists of net premiums, after
deductions for expenses.
The primary use of the private offering was to provide restricted cash
needed for the JUA. UPCIC expects that JUA premiums and renewals are sufficient
to meet the UPCIC's current working capital requirements. Amounts considered to
be in excess of current working capital requirements in the aggregate of
$2,831,098 at June 30, 1998 have been invested. UPCIC believes that the JUA
premiums, renewals and the excess working capital will be sufficient to meet
UPCIC's working capital needs for the next twelve months.
UPCIC 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 29,000 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. UPCIC 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. UPCIC is also seeking to
establish relationships with insurance agents outside of the JUA program to
write new business.
13
<PAGE>
To continue to grow its insurance operations, UPCIC can obtain additional
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. UPCIC recently commenced selling policies in the open market through
independent agents. In determining appropriate guidelines for such open market
policy sales, UPCIC employs standards similar to those used by UPCIC when
selecting policies from the JUA.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1998 VERSUS SIX MONTHS
ENDED JULY 31, 1997
The operations for the six months ended June 30, 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 $4,196,356 after
reinsurance on approximately 29,000 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
$336,812 in cash and cash equivalents aggregating $3,755,712 and fixed maturity
securities aggregating $2,674,638 at June 30, 1998. Such funds were received for
advance premiums and from the Company's private offering.
Loss and loss adjustment expenses for the six months ended June 30, 1998
were $1,628,814. These costs relate to insurance claims incurred by UPCIC.
General and administrative expenses were $1,360,383 as compared to $329,165 for
the six months ended July 31, 1998. General and administrative expenses have
increased due to the Company's insurance operations.
As a result of a change in the Company's year end, the Company presented
the six months ended July 31, 1997 (the fourth quarter of its last fiscal year)
as comparatives.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1998 VERSUS THREE MONTHS
ENDED JULY 31, 1997
The operations for the three months ended June 30, 1998 reflect the
Company's first full quarter of the Company's newly started insurance business,
and are therefore not directly comparative to the previous period. Revenues,
loss and loss adjustment expenses and general and administrative expenses have
increased significantly when compared to the prior year period as well as the
first quarter of 1998 as a result of the development of the insurance
operations.
As a result of a change in the Company's fiscal year end, the Company
prsented the three months ended July 31, 1997 (the fourth quarter of its last
fiscal year) as comparatives.
14
<PAGE>
UNIVERSAL HEIGHTS, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 15, 1997, two former employees of the Company, John D. Walker and
Larry Martin ("Claim Representatives"), filed a lawsuit against the Company on
behalf of themselves and certain other individuals ("Plaintiffs") 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 entered into a
Settlement Agreement and Mutual Release with the Claim Representatives dated
April 15, 1998 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.
ITEM 2. CHANGES IN SECURITIES
On May 7, 1998, the Company granted 1,050,000 options to officers and
directors to purchase stock at $1.63 per share ("Options"), the quoted market
price at that date. In connection with the Settlement Agreement and Mutual
Release described in Item 1 above, on April 15, 1998, the Company issued an
aggregate of 10,000 shares of the Company's common stock , $.01 par value per
share ("Shares") to the Plaintiffs. The shares were issued at a fair market
value of $1.50 per share. In addition, pursuant to an agreement approved by the
board of directors on July 9, 1998 between the Company and Value Management
Research ("Value Management"), the Company agreed to issue 100,000 warrants to
purchase shares of common stock to Value Management at an exercise price of
$2.00 per share ("Warrants") in connection with investor relation services. The
Options, Shares and Warrants were issued in reliance on 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.
15
<PAGE>
UNIVERSAL HEIGHTS, INC.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
16
<PAGE>
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.
/s/ Bradley I. Meier
Date: August 12, 1998 _____________________________
Bradley I. Meier, President
17
Exhibit 11
Universal Heights, Inc.
Statement Regarding the Computation of Per Share Income (Loss)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JULY 31, JUNE 30, JULY 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Computation of Net Income (Loss) Per Share:
Weighted average number of
shares outstanding 14,681,000 3,426,000 14,626,000 3,426,000
Income (Loss) applicable to
common stock:
From continuing operations $ 1,174,685 $ (230,498) $ 1,547,516 $ (337,357)
=========== =========== =========== ===========
From discontinued operations $ - $ (38,771) $ - $(1,614,897)
=========== =========== =========== ===========
Net Income (loss) $ 1,174,685 $ (269,269) $ 1,547,516 $(1,952,254)
=========== =========== ============ ===========
Basic Income (loss) per share:
From continuing operations $ 0.08 $(0.07) $ 0.11 $(0.10)
======= ======= ======= =======
From discontinued operations $ - $(0.01) $ - $(0.47)
======== ======= ======== =======
Net Income (loss) $ 0.08 $(0.08) $ 0.11 $(0.57)
======= ======= ======= =======
</TABLE>
The dilutive effect of options and warrants increased the weighted shares by
3,106,000 shares for the three months ended June 30, 1998 and 3,107,000 shares
for the six months ended June 30, 1998 resulting in diluted earnings per share
of $0.07 and $0.09, respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNIVERSAL
HEIGHTS, INC. AND SUBSIDIARY FORM 10-QSB FOR THE PERIOD ENDED JUNE 30, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 9,055,712 9,055,702
<SECURITIES> 2,831,098 2,831,098
<RECEIVABLES> 2,630,830 2,630,830
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,590,990 5,590,990
<PP&E> 4,375 4,375
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 20,113,005 20,113,005
<CURRENT-LIABILITIES> 13,360,310 13,360,310
<BONDS> 0 0
0 0
1,387 1,387
<COMMON> 146,876 146,876
<OTHER-SE> 6,604,432 6,604,432
<TOTAL-LIABILITY-AND-EQUITY> 20,113,005 20,113,005
<SALES> 4,196,356 4,196,356
<TOTAL-REVENUES> 4,536,713 3,639,941
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,989,197 2,465,256
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,547,516 1,174,685
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 1,547,516 1,174,685
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,547,516 1,174,685
<EPS-PRIMARY> 0.11 0.08
<EPS-DILUTED> 0.09 0.07
</TABLE>
