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 September 30, 2000
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 300
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 October 1, 2000: 14,751,694.
Transitional Small Business Disclosure Format Yes No X
-- --
<PAGE>
UNIVERSAL HEIGHTS, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
------- --------------------
The following unaudited 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 September 30, 2000 are not
necessarily indicative of the results for the year ending December 31, 2000.
2
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2000
(Unaudited)
ASSETS
Debt securities held-to-maturity (fair value of $3,426,137) $3,569,493
Equity securities available for sale (cost of $313,997) 377,005
Cash and cash equivalents 11,324,748
Prepaid reinsurance premiums 10,082,125
Premiums and other receivables 820,916
Deferred policy acquisition costs 2,483,461
Property, plant and equipment, net 565,880
--------
Total assets $29,223,628
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses $3,470,325
Unearned premiums 13,767,482
Accounts payable 2,352,723
Other accrued expenses 1,038,554
Accrued taxes, licenses and fees 11,384
Due to related parties 20,040
------
Total liabilities $20,660,508
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Cumulative convertible preferred stock, $.01 par value, 1,000,000
shares authorized, 138,640 shares issued and outstanding,
minimum liquidation preference of $1,419,700 1,387
Common stock, $.01 par value, 40,000,000 shares authorized,
14,794,584 shares issued and outstanding 147,946
Common stock in treasury, at cost - 42,890 shares
(34,508)
Additional paid-in capital 15,108,741
Accumulated deficit (6,723,454)
Accumulated other comprehensive income 63,008
---------
Total stockholders' equity 8,563,120
-----------
Total liabilities and stockholders' equity $29,223,628
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
<PAGE>
<TABLE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For Nine Months Ended For Three Months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
PREMIUMS EARNED AND OTHER REVENUES
Premium income - net $5,116,917 $5,209,931 $1,462,771 $1,641,903
Net investment income 778,672 409,234 258,237 122,135
Commission revenue 1,035,819 648,900 391,022 106,438
--------- ------- ------- -------
Total revenues 6,931,408 6,268,065 2,112,030 1,870,476
OPERATING COST AND EXPENSES:
Losses and loss adjustment expenses 2,836,265 2,221,804 1,235,453 846,754
General and administrative expenses 4,079,128 2,473,036 1,585,479 510,162
--------- --------- --------- -------
Total operating expenses 6,915,393 4,694,840 2,820,932 1,356,916
NET INCOME (LOSS) $16,015 $1,573,225 $ (708,902) $ 513,560
========= ========== ========== ========
INCOME (LOSS) PER COMMON SHARE:
Basic $ 0.00 $ 0.10 $ (0.05) $ 0.03
=========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 14,780,000 14,673,000 14,752,000 14,673,000
=========== ========== ========== ==========
INCOME (LOSS) PER COMMON SHARE:
Diluted $ 0.00 $ 0.10 $ (0.05) $ 0.03
=========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 15,751,000 15,823,000 15,320,000 15,930,000
=========== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
<TABLE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(Unaudited)
<CAPTION>
For Nine Months For Three Months
Ended Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $16,015 $1,573,225 $(708,902) $513,560
OTHER COMPREHENSIVE INCOME:
Change in net unrealized (loss) gain on
available-for- sale securities (170,219) 204,474 (9,855) (85,237)
--------- ----------- ---------- --------
COMREHENSIVE INCOME (LOSS) $(154,204) $1,777,699 $(718,757) $428,323
============= ========== ========== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
5
<PAGE>
<TABLE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, September 30,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,015 $ 1,573,225
Adjustments to reconcile net income
to cash provided by operations:
Amortization and depreciation 50,320 -
Gain on sales of equity securities available-for-sale (182,708) -
Warrants issued in lieu of payments 19,000 -
Net change in assets and liabilities relating to operating activities:
Prepaid reinsurance premiums (3,213,700) 8,012,128
Other receivables and deposits 60,921 (589,460)
Reinsurance recoverable on losses - (5,635,766)
Deferred policy acquisition costs 37,415 (450,158)
Accounts payable 770,480 (271,372)
Accrued expenses (611,184) (5,200)
Accrued taxes, licenses and fees (202,878) 75,000
Unpaid losses and loss adjustment expenses 405,937 (370,207)
Unearned premiums (1,027,090) (3,524,506)
Due to/from related parties and other - (115,670)
----------- -----------
Net cash used in operating activities (3,877,472) (1,301,986)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (372,839) 40,173
Purchase of equity securities available-for-sale (434,253) -
Proceeds from sale of equity securities available-for-sale 551,601 235,232
Purchase of debt securities held-to-maturity (1,147,085) (1,692,414)
Proceeds from maturities of debt securities held-to-maturity 403,786 1,143,186
Collections on notes receivable 250,000
Net cash used in investing activities (998,790) (23,823)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividend (37,463) (37,463)
Treasury stock purchases (34,509) -
---------- -----------
Net cash used in financing activities (71,972) (37,463)
---------- -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (4,948,234) (1,363,272)
CASH AND CASH EQUIVALENTS, Beginning of period 16,272,982 11,987,091
---------- -----------
CASH AND CASH EQUIVALENTS, End of period $11,324,748 $10,623,819
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
Universal Heights, Inc. ("Company"), its wholly-owned subsidiary, Universal
Property & Casualty Insurance Company ("UPCIC"), and other entities which are
under common control through common ownership. All intercompany accounts and
transactions have been eliminated in consolidation.
The consolidated balance sheet of the Company as of September 30, 2000 and the
related consolidated statements of operations and cash flows for nine months
ended September 30, 2000 and 1999 are unaudited. The accounting policies
followed for quarterly financial reporting are the same as those disclosed in
the Notes to Consolidated Financial Statements included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999. The interim
financial statements reflect all adjustments (consisting of only normal and
recurring accruals and adjustments) which are, in the opinion of management,
necessary for 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 thus should be read in conjunction
with the Company's annual statements.
The preparation of financial statements in conformity with Generally Accepted
Accounting Principles ("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.
Certain reclassifications have been made in the 1999 financial statements to
conform them to and make them consistent with the presentation used in the 2000
financial statements.
New Accounting Pronouncements. in June 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
133, Accounting for Derivative Instruments and Hedging Activities. Among other
provisions, SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It also requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. In
July 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133, which changes the effective date of SFAS No. 133 for financial statements
for fiscal years beginning after June 15, 2000. Management does not expect the
adoption of SFAS No. 133 to have a material impact on the Company's financial
position, results of opertions or cash flows.
7
<PAGE>
In October 1998, the AICPA issued Statement of Position ("SOP") 98-7, Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk. SOP 98-7 provides guidance on the accounting for
insurance and reinsurance contracts that do not transfer insurance risk. The
Company adopted SOP 98-7 in the first quarter of 2000. The adoption of SOP 98-7
did not have a material impact on the Company's financial position, results of
operations or cash flows.
NOTE 2 - INSURANCE OPERATIONS
UPCIC commenced its insurance activity in February 1998 by assuming policies
from the Florida Residential Property and Casualty Joint Underwriting
Association ("JUA"). UPCIC received the unearned premiums and began servicing
such policies. Since then, UPCIC has been renewing these policies as well as
soliciting business actively in the open market through independent agents.
Unearned premiums represent amounts that UPCIC would refund policyholders if
their policies were canceled. 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 September 30,
2000, the Company had unearned premiums totaling $13,767,482.
Universal Property and Casualty Management, Inc., an outside management company,
provides 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 nine months ended
September 30, 2000 totaled $764,468.
The JUA's incentive program provided approximately $2,700,000 to an escrow
account. These funds will be released to UPCIC when certain conditions are met,
including not canceling policies acquired from the JUA for a three year period.
As of September 30, 2000, the Company has substantially complied with the
requirements related to the bonus payments, thus UPCIC anticipates that it will
receive from escrow bonus payments in the first quarter of 2001. The escrow
account is not included in the accompanying consolidated financial statements.
Premiums earned 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 unearned
ceding commissions are 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 September 30, 2000, deferred policy acquisition
costs amounted to $2,483,461.
An allowance for uncollectible premiums receivable is established when it
becomes evident collection is doubtful. No allowance is deemed necessary at
September 30, 2000.
Claims and claims adjustment expenses, less related reinsurance, are provided
for as claims are incurred. The provision for unpaid claims and claim adjustment
8
<PAGE>
expenses includes: (1) the accumulation of individual case estimates for claims
and claims 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 claims adjustment expenses are based on
estimates of ultimate cost of settlement. Changes in claims 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.
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 continuously reviewed 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 claims
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.
NOTE 3 - REINSURANCE
UPCIC's in-force policyholder coverage for windstorm exposures as of September
30, 2000 was approximately $4.5 billion. 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.
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 June 1, 2000, UPCIC entered into quota share and excess per risk
agreements with Swiss Reinsurance America Corporation, rated A+ by A.M. Best.
9
<PAGE>
Under the quota share treaty, UPCIC cedes a portion of its gross written
premiums, losses and loss adjustment expenses with a ceding commission of 35%.
The Company has the option to retroactively increase the annual cession to 75%
or retroactively reduce the cession to 45%. For the second and third quarters
ended September 30, 2000, UPCIC elected to cede 65% of gross written premiums,
losses and loss adjustment expenses. Previously UPCIC ceded 50% of gross written
premiums, losses and loss adjustment expenses. In addition, the quota share
treaty has a limitation for any one occurrence of $6,500,000 with an option for
an additional $3,500,000. Under the excess per risk agreement, UPCIC obtained
coverage of $1,300,000 in excess of $500,000 ultimate net loss for each risk,
each loss, excluding losses arising from the peril of wind to the extent such
wind related losses are the result of a hurricane. A $2,600,000 limit applies to
any one-loss occurrence.
Effective June 1, 2000, under an excess catastrophe contract, UPCIC obtained
coverage of $39,000,000 in excess of $2,000,000. UPCIC also obtained variable
coverage of $10,000,000 in excess of $39,000,000 ultimate net loss each loss
occurrence.
UPCIC also obtained coverage from the Florida Hurricane Catastrophe Fund, which
is estimated to be $50,000,000. In addition, in the event a hurricane were to
decrease the limits of catastrophe coverage, UPCIC purchased contingency
coverage to replace the Florida Hurricane Catastrophe coverage for losses of
$40,000,000 in excess of $40,000,000.
The ceded reinsurance arrangements had the following effect on certain items in
the accompanying consolidated financial statements:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
Unpaid Loss Unpaid Loss
and Loss and Loss
Adjustment Premiums Premiums Adjustment Premiums Premiums
Expenses Written Earned Expenses Written Earned
-------- ------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Direct $ 6,782,515 $19,281,560 $20,308,651 $4,046,701 $11,821,024 $13,991,878
Assumed 6,457 (22,908) (22,908) 396,908 (60,548) 1,293,137
Ceded (3,952,707) (16,453,672) (15,168,826) (2,221,805) (8,572,846) (10,075,084)
----------- ----------- ------------ ----------- ---------- -----------
Net $2,836,265 $2,804,980 $5,116,917 $2,221,804 $3,187,630 $5,209,931
========== ========== ============ ========== ========== ==========
</TABLE>
10
<PAGE>
OTHER AMOUNTS:
September 30,
2000
----
Reinsurance recoverable on unpaid losses
and loss adjustment expenses $ 2,071,009
Unearned premiums reserve ceded 8,011,116
----------
$ 10,082,125
==========
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. No allowance is deemed necessary at September 30, 2000. 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.
NOTE 4 - UNIVERSAL HEIGHTS, INC. STOCK GRANTOR TRUST
On April 3, 2000, the Company established the Universal Heights, Inc. Stock
Grantor Trust ("SGT") to fund its obligations arising from its various stock
option agreements. The Company funded the SGT with 2,900,000 shares of newly
issued Company stock. In exchange, the SGT has delivered $29,000 and a
promissory note to the Company for approximately $2,320,000 which together
represent the purchase price of the shares. Amounts owed by the SGT to the
Company will be repaid by cash received by the SGT, which will result in the SGT
releasing shares to satisfy Company obligations for stock options.
For financial reporting purposes, the SGT is consolidated with the Company. The
fair market value of the shares held by the SGT is shown as a reduction to
stockholders' equity in the Company's consolidated balance sheet. All
transactions between the SGT and the Company are eliminated. The difference
between the cost and fair value of common stock held in the SGT is included in
the consolidated financial statements as additional paid-in capital.
Shares held by the SGT are excluded from weighted average shares outstanding
used in the computation of income or loss per common share.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
------- ------------------------------------------------------------------------
The following discussion and analysis by management of the Company's
consolidated financial condition and results of operations should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto.
FORWARD-LOOKING STATEMENTS
Certain statements made by the Company's management may be considered
to be "forward-looking statements" within the meaning of the Private Securities
Litigation Act of 1995. Forward-looking statements are based on various factors
and assumptions that include known and unknown risks and uncertainties. The
words "believe," "expect," "anticipate," and "project," and similar expressions,
identify forward-looking statements, which speak only as of the date the
statement was made. Such statements may include, but not be limited to,
projections of revenues, income or loss, expenses, plans, as well as assumptions
relating to the foregoing. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
results could differ materially from those described in forward-looking
statements as a result of the risks set forth in the following discussion, among
others.
OVERVIEW
The Company is a vertically integrated insurance holding company. The
Company, through its subsidiaries, is currently engaged in insurance
underwriting, distribution and claims. UPCIC generates revenue from the
collection and investment of premiums. The Company's agency operations which
include Universal Florida Insurance Agency and U.S. Insurance Solutions, Inc.
generate income from policy fees, commissions, premium financing referral fees
and the marketing of ancillary services. Universal Risk Advisors, Inc., the
Company's managing general agent, generates revenue through policy fee income
and other administrative fees from the marketing of UPCIC's and third party
insurance products through the Company's distribution network and UPCIC. Capital
Resources Group Ltd. was formed to participate in contingent capital products.
Universal Risk Life Advisors, Inc. was formed to be the Company's managing
general agent for life insurance products. In addition, the Company has formed
an independent claims adjusting company, Universal Adjusting Corporation, which
adjusts UPCIC claims in certain geographic areas and an inspection company,
Universal Inspection Corporation, which performs property inspections for
homeowners' policies underwritten by UPCIC.
The Company has also formed two subsidiaries, both Internet start-up
companies, that plan to specialize in selling insurance via the Internet.
Tigerquote.com Insurance & Financial Services, Inc. plans to be an Internet
insurance company while Tigerquote.com Insurance Solutions, Inc. plans to be a
network of Internet insurance agencies. At September 30, 2000, agencies have
been established in 22 states. Separate legal entities are being formed for each
state and will be governed by the respective states' department of insurance.
12
<PAGE>
FINANCIAL CONDITION
Cash and cash equivalents at September 30, 2000 aggregated $11,324,748.
The source of liquidity for possible claims payments consists of net premiums,
after deductions for expenses.
UPCIC expects that premiums will be sufficient to meet UPCIC's working
capital requirements for at least the next twelve months. Amounts considered to
be in excess of current working capital requirements have been invested. At
September 30, 2000 UPCIC's investments were comprised of $11,324,748 in cash and
repurchase agreements, $3,569,493 in fixed maturity securities and $377,005 in
equity securities.
Policies originally obtained from the Florida Residential Property and
Casualty Joint Underwriting Association ("JUA") provided the opportunity for
UPCIC to solicit future renewal premiums. Approximately 65% of the policies
obtained from the JUA subsequently renewed with the Company. The JUA takeout
program was attractive because it provided both substantial regulatory and
financial incentives to private insurer participants such as UPCIC. Participants
receive a bonus payment based upon the number of policies taken out of the JUA
portfolio. Through September 30, 20000, UPCIC has received bonus payments of
approximately $2,700,000 based upon a portfolio takeout of approximately 30,000
policies. Bonus payments are held in escrow for three years. After the
three-year period, if certain conditions are met, including maintaining a
minimum number of policies, UPCIC will have unrestricted use of the bonus
payments. In addition, UPCIC will have investment income from the bonus payments
that will also be available at the end of the three years. UPCIC anticipates
that it will receive from escrow bonus payments in the first quarter of 2001
because, to date, the Company has substantially complied with requirements
related to the bonus payments. UPCIC does not expect to participate in takeouts
of additional policies from the JUA.
In an effort to further grow its insurance operations, in 1998 the
Company began to solicit business actively in the open market. Through renewal
of JUA business combined with business solicited in the market through
independent agents, UPCIC is currently servicing approximately 39,500 homeowners
insurance policies. In determining appropriate guidelines for such open market
policy sales, UPCIC employs standards similar to those used in its selection of
JUA policies. Also, to improve underwriting and manage risk, the Company uses
analytical tools and data currently developed in conjunction with Risk
Management Solutions (RMS). To diversify UPCIC's product lines, management may
consider underwriting inland marine and personal umbrella liability policies in
the future. Any such program will require DOI approval.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS NINE MONTHS
ENDED SEPTEMBER 30, 1999
Gross premiums written increased 63.1% to $19,281,560 for the nine
month period ended September 30, 2000 from $11,821,024 for the nine month period
ended September 30, 1999. The increase in gross premiums written is primarily
attributable to the Company's effort to solicit business in the open market
through independent agents.
Net premiums written decreased 34.6% to $2,804,980 for the nine month
period ended September 30, 2000 from $3,187,630 for the nine month period ended
September 30, 2000. The decrease in net premiums written reflects the impact of
reinsurance since $16,453,672 or 85.3% of premiums written were ceded to
reinsurers for the nine month period ended September 30, 2000 as compared to
$8,572,846 or 72.5% for the nine month period ended September 30, 1999. This was
a result of increased costs of the reinsurance program relative to the premium
base in 2000, as well as a higher rate of cession on the quota share reinsurance
treaty.
Net premiums earned decreased 1.8% to $5,116,917 for the nine month
period ended September 30, 2000 from $5,209,931 for the nine month period ended
September 30, 1999. The decrease in net premiums earned is attributable to
13
<PAGE>
policies assumed from the JUA as part of the Takeout Program that did not renew
with the Company during 1999, as well as a result of increased costs of the
reinsurance program and a higher rate of cession on the quota share reinsurance
treaty. The decrease is mitigated by the Company's effort to solicit business in
the open market.
Commission income increased 59.6% to $1,035,819 for the nine month
period ended September 30, 2000 from $648,900 for the nine month period ended
September 30, 1999. Commission income is comprised mainly of the managing
general agent's policy fee income on all new and renewal insurance policies and
commissions generated from agency operations.
Investment income consists of net investment income and net realized
gains (losses). Investment income increased 90.3% to $778,672 for the nine month
period ended September 30, 2000 from $409,234 for the nine month period ended
September 30, 1999. The increase is primarily due to gains recognized on the
sale of equity securities in the nine months ended September 30, 2000.
Losses and loss adjustment expenses ("LAE") incurred increased 27.7% to
$2,836,265 for the nine month period ended September 30, 2000 from $2,221,804
for the nine month period ended September 30, 1999. The Company's loss ratio, in
accordance with GAAP, for the nine month period ended September 30, 2000 was
55.4% compared to 42.6% for the nine month period ended September 30, 1999.
Losses and LAE, the Company's most significant expense, represent actual
payments made and changes in estimated future payments to be made to or on
behalf of its policyholders, including expenses required to settle claims and
losses. Losses and LAE are influenced by loss severity and frequency. The
severity and frequency of claims remained relatively stable for the years under
comparison.
Catastrophes are an inherent risk of the property-liability insurance
business which may contribute to material year-to-year fluctuations in UPCIC's
results of operations and financial position. The level of catastrophe loss
experienced in any year cannot be predicted and could be material to the results
of operations and financial position. While management believes UPCIC's
catastrophe management strategies will reduce the severity of future losses,
UPCIC continues to be exposed to similar or greater catastrophes.
General and administrative expenses increased 64.9% to $4,079,128 for
the nine month period ended September 30, 2000 from $2,473,036 for the nine
month period ended September 30, 1999. General and administrative expenses have
increased due to further development of the Company's insurance operations.
Approximately $900,000 of general and administrative expenses has been incurred
in 2000 developing the Company's insurance Internet initiative.
14
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS THREE
MONTHS ENDED SEPTEMBER 30, 1999
Gross premiums written increased 8.5% to $7,472,992 for the three month
period ended September 30, 2000 from $6,888,730 for the three month period ended
September 30, 1999. The increase in gross premiums written is primarily
attributable to the Company's effort to solicit business in the open market
through independent agents.
Net premiums earned decreased 10.9% to $1,462,771 for the three month
period ended September 30, 2000 from $1,641,903 for the three month period ended
September 30, 1999. The decrease in net premiums earned is attributable to
policies assumed from the JUA as part of the Takeout Program that did not renew
with the Company during 1999, as well as a result of increased costs of the
reinsurance program and a higher rate of cession on the quota share reinsurance
treaty. The decrease is mitigated by the Company's effort to solicit business in
the open market through independent agents.
Commission income increased 267.4% to $391,022 for the three month
period ended September 30, 2000 from $106,438 for the three month period ended
September 30, 1999. Commission income is comprised mainly of the managing
general agent's policy fee income on all new and renewal insurance policies and
commissions generated from agency operations.
Investment income consists of net investment income and net realized
gains (losses). Investment income increased 111.4% to $258,237 for the three
month period ended September 30, 2000 from $122,135 for the three month period
ended September 30, 1999.
Losses and loss adjustment expenses ("LAE") incurred increased 45.9% to
$1,235,453 for the three month period ended September 30, 2000 from $846,754 for
the three month period ended September 30, 1999. The Company's loss ratio, in
accordance with GAAP, for the three month period ended September 30, 2000 was
84.5% compared to 51.6% for the three month period ended September 30, 1999.
Losses and LAE, the Company's most significant expense, represent actual
payments made and changes in estimated future payments to be made to or on
behalf of its policyholders, including expenses required to settle claims and
losses. Losses and LAE are influenced by loss severity and frequency.
General and administrative expenses increased 210.8% to $1,585,479 for
the three month period ended September 30, 2000 from $510,162 for the three
month period ended September 30, 1999. General and administrative expenses have
increased due to further development of the Company's insurance operations.
Approximately $900,000 of general and administrative expenses has been incurred
in developing the Company's insurance Internet initiative in 2000, approximately
$440,000 of which was incurred in the third quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital are premium revenues and
investment income.
For the nine month period ended September 30, 2000, cash flows used in
operating activities were $3,877,472 primarily due to the relatively smaller
15
<PAGE>
premium base with renewals in the first half of the year and JUA policies that
did not renew. Cash flow from operating activities is expected to be positive in
the reasonably foreseeable future. In addition, the Company's investment
portfolio is highly liquid as it consists almost entirely of readily marketable
securities. Cash flows from investing activities are primarily comprised of
purchases and sales of debt and equity securities. Cash flows from financing
activities is comprised of payment of preferred stock dividends and purchases of
treasury stock.
The Company believes that its current capital resources will be
sufficient to support current operations and expected growth for at least 24
months.
The balance of cash and cash equivalents at September 30, 2000 is
$11,324,748. This amount along with readily marketable debt and equity
securities aggregating $3,946,498 would be available to pay claims in the event
of a catastrophic event pending reimbursement for any aggregate amount in excess
of $1 million up to the 100 year Probable Maximum Loss ("PML") which would be
covered by reinsurers. Catastrophic reinsurance is recoverable upon presentation
to the reinsurer of evidence of claim payment.
To retain its certificate of authority, the Florida insurance laws and
regulations require that UPCIC maintain capital surplus equal to the statutory
minimum capital and surplus requirement defined in the Florida Insurance Code.
The Company is also required to adhere to prescribed premium-to-capital surplus
ratios. The Company is in compliance with these requirements.
The maximum amount of dividends which can be paid by Florida insurance
companies without prior approval of the Florida Commissioner is subject to
restrictions relating to statutory surplus. The maximum dividend that may be
paid by the Company without prior approval is limited to the lesser of statutory
net income from operations of the preceding calendar year or 10.0% of statutory
unassigned capital surplus as of the preceding year end. Pursuant to a consent
order issued to UPCIC, during UPCIC's first four years of operations, any
dividend would require DOI approval.
The Company is required to comply with the National Association of
Insurance Commissioner's ("NAIC") Risk-Based Capital requirements ("RBC"). RBC
is a method of measuring the amount of capital appropriate for an insurance
company to support its overall business operations in light of its size and risk
profile. NAIC's RBC standards are used by regulators to determine appropriate
regulatory actions relating to insurers who show signs of weak or deteriorating
condition. As of December 31, 1999, based on calculations using the appropriate
NAIC formula, the Company's total adjusted capital is in excess of the amount
which would require any form of regulatory action. GAAP differs in some respects
from reporting practices prescribed or permitted by the Florida Department of
Insurance. UPCIC's statutory capital and surplus was $5,412,606 as of September
30, 2000. Statutory net income was $129,192 for the nine month period ended
September 30, 2000 and $635,794 for the nine month period ended September 30,
1999.
16
<PAGE>
UNIVERSAL HEIGHTS, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
------- -----------------
Certain claims and complaints have been filed or are pending against
the Company with respect to various matters. In the opinion of management all
such matters are adequately reserved for or covered by insurance or, if not so
covered, are without any or have little merit or involve such amounts that if
disposed of unfavorably would not have a material adverse effect on the Company.
Item 2. Changes in Securities
------- ---------------------
On January 26, 2000, the Company granted an aggregate of 355,000
options to purchase shares of common stock to the officers and directors of the
Company at an exercise price of $1.10 per share, the quoted market price at that
date. On March 15, 2000, the Company granted 225,000 options to an officer to
purchase stock at $1.00 per share, the quoted market price at that date. On
March 15, 2000, the Company granted 25,000 options to an officer to purchase
stock at $1.00 per share, the quoted market price at that date. In addition, on
March 20, 2000, the Company granted an aggregate of 204,166 options to the
officers and directors of the Company to purchase shares of common stock of the
Company's subsidiary, Tigerquote.com Insurance and Financial Services Group Inc.
at an exercise price of $.60 per share.
Pursuant to an agreement between the Company and KCSA Public Relations
Worldwide ("KCSA"), the Company agreed to issue 75,000 warrants to Robert J.
Giordano to purchase shares of common stock at an exercise price of $1.75 per
share in connection with investor relation services. The options and warrants
were issued in reliance on an exemption from registration under Section 4(2) of
the Securities Act of 1933 as amended. Warrants to be issued to Nunzio J.
Valerie, Jr. pursuant to an agreement between the Company and NJV Associates,
Inc. were in fact not issued.
Item 3. Defaults upon Senior Securities
------ -------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
None.
Item 5. Other Information
------ -----------------
None.
Item 6. Exhibits and Reports on Form 8-K
------ --------------------------------
None.
17
<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.
Date: November 13, 2000 /s/ Bradley I. Meier
-------------------------------
Bradley I. Meier, President
18
<PAGE>
EXHIBIT II
Universal Heights, Inc.
Statement Regarding the Computation of Per Share Income
The following table reconciles the numerator (earnings) and denominator (shares)
of the basic and diluted earnings per share computations for net income for the
nine month and three month periods ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
Income Income
Available Available
to Common Per-Share to Common Per-Share
Stockholders Shares Amount Stockholders Shares Amount
------------ ------ ------ ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income $16,015 $1,573,225
Less: Preferred stock dividends (37,463) (37,463)
-------- ------
Income available to common
stockholders (21,448) 14,780,000 $0.00 $1,535,762 14,673,000 $0.10
Effect of dilutive securities:
Stock options and warrants --- 403,000 --- --- 582,000 ---
Preferred stock 37,463 568,000 --- 37,463 568,000 ---
------ -------- ------ --------- ------- -----
Income available to common
stockholders and assumed
conversion $16,015 15,751,000 $ 0.00 $1,573,225 15,823,000 $0.10
======= ========== ====== ========== ========== ======
Options and warrants totaling 10,334,276 and 9,625,000 were excluded from the
calculation of diluted earnings per share as their effect was anti-dilutive for
the nine months ended September 30, 2000 and 1999, respectively.
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
Income Income
Available Available
to Common Per-Share to Common Per-Share
Stockholders Shares Amount Stockholders Shares Amount
------------ ------ ------ ------------ ------ ------
Net income (loss) $ (708,902) $ 513,560
Less: Preferred stock dividends (12,488) (12,488)
---------- ------
Income available to common
stockholders (721,380) 14,752,000 $(0.05) $ 501,072 14,673,000 $0.03
===== =====
Effect of dilutive securities:
Stock options and warrants --- --- --- --- 689,000 ---
Preferred stock 12,488 568,000 --- 12,488 568,000 ---
------ ------- ---- ------ ------- -----
Income available to common
stockholders and assumed
conversion $ (708,902) 15,320,000 $ (0.05) $ 513,560 15,930,000 $0.03
========== ========== ======== ========= ========== =====
</TABLE>
Options and warrants totaling 10,737,276 and 9,518,000 were excluded from the
calculation of diluted earnings per share as their effect was anti-dilutive for
the three months ended September 30, 2000 and 1999, respectively.
19
