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, 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 May 1, 2000: 14,794,584.
Transitional Small Business Disclosure Format Yes __ No X
--
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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 six months ended June 30, 2000 are not necessarily
indicative of the results for the year ending December 31, 2000.
2
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UNIVERSAL HEIGHTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(Unaudited)
ASSETS
Debt securities held-to-maturity (fair value of $3,204,035) $ 3,396,976
Equity securities available for sale (cost of $325,211) 398,074
Cash and cash equivalents 12,415,504
Prepaid reinsurance premiums 9,092,105
Premiums and other receivables 996,467
Deferred policy acquisition costs 2,392,413
Property, plant and equipment, net 407,456
-------
Total assets $29,098,995
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses $ 3,240,654
Unearned premiums 13,528,072
Accounts payable 1,577,875
Other accrued expenses 1,390,206
Accrued taxes, licenses and fees 11,384
Due to related parties 20,041
------
Total liabilities $19,768,232
-----------
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
Additional paid-in capital 15,110,631
Accumulated deficit (6,002,064)
Accumulated other comprehensive income 72,863
---------
Total stockholders' equity 9,330,763
---------
Total liabilities and stockholders' equity $29,098,995
===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
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UNIVERSAL HEIGHTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For Six Months Ended For Three Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
PREMIUMS EARNED AND OTHER REVENUES
Premium income - net $3,654,146 $3,568,028 $1,606,697 $1,117,217
Net investment income 520,435 291,803 326,687 141,495
Commission revenue 644,797 537,758 313,788 163,666
--------- --------- --------- ---------
Total revenues 4,819,378 4,397,589 2,247,172 1,422,378
OPERATING COST AND EXPENSES:
Losses and loss adjustment expenses 1,600,812 1,375,050 711,876 311,653
General and administrative expenses 2,493,649 1,962,874 1,417,054 570,169
--------- --------- --------- ---------
Total operating expenses 4,094,461 3,337,924 2,128,930 881,822
NET INCOME $724,917 $1,059,665 $118,242 $540,556
======== ========== ======== ========
INCOME PER COMMON SHARE:
Basic $ 0.05 $ 0.07 $ 0.01 $ 0.04
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 14,795,000 14,673,000 14,795,000 14,673,000
========== ========== ========== ==========
INCOME PER COMMON SHARE:
Diluted $ 0.05 $ 0.07 $ 0.01 $ 0.03
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 15,968,000 15,770,000 15,412,000 15,854,000
========== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
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UNIVERSAL HEIGHTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(Unaudited)
For Six Months For Three Months
Ended Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
NET INCOME $724,917 $1,059,665 $118,242 $540,556
OTHER COMPREHENSIVE INCOME:
Change in net unrealized
(loss) gain on available-
for-sale securities (160,364) 289,711 (370,533) 242,991
----------- ---------- ---------- ---------
COMREHENSIVE INCOME
(LOSS) $564,553 $1,349,376 $(252,291) $783,547
=========== ========== ========== ========
The accompanying notes to consolidated financial statements are
an integral part of these statements.
5
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UNIVERSAL HEIGHTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, June 30,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 724,917 $ 1,059,665
Adjustments to reconcile net income
to cash provided by operations:
Amortization and depreciation 33,630 -
Gain on sales of equity securities
available-for-sale (98,083) -
Warrants issued in lieu of payments 20,890 -
Net change in assets and liabilities relating to
operating activities:
Prepaid reinsurance premiums ( 2,223,680) 8,012,128
Other receivables and deposits (114,630) (978,001)
Reinsurance recoverable on losses - (4,784,902)
Deferred policy acquisition costs 128,463 355,551
Accounts payable (4,368) (229,304)
Accrued expenses (259,532) (210,132)
Accrued taxes, licenses and fees (202,878) (110,738)
Unpaid losses and loss adjustment expenses 176,266 (594,112)
Unearned premiums ( 1,266,500) (5,107,612)
Due to/from related parties and other - (224,437)
----------- ----------
Net cash used in operating activities ( 3,085,505) (2,811,894)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (197,725) 73,765
Purchase of equity securities
available-for-sale (412,370) -
Proceeds from sale of equity securities
available-for-sale 434,253 235,232
Purchase of debt securities
held-to-maturity (884,375) 769,453)
Proceeds from maturities of debt securities
held-to-maturity 313,220 743,639
Collections on notes receivable - 250,000
----------- ----------
Net cash ( used in) provided by investing activities (746,997) 533,183
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividend (24,976) (24,976)
-------- --------
Net cash used in financing activities (24,976) (24,976)
-------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (3,857,478) (2,303,687)
CASH AND CASH EQUIVALENTS, Beginning of period 16,272,982 11,987,091
---------- ----------
CASH AND CASH EQUIVALENTS, End of period $12,415,504 $9,683,404
=========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
6
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UNIVERSAL HEIGHTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 30, 2000 and the
related consolidated statements of operations and cash flows for six months
ended June 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 General 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 has not determined
the effect, if any, of adopting SFAS No. 133.
In October 1998, the AICPA issued Statement of Position ("SOP") 98-7, DEPOSIT
ACCOUNTING: ACCOUNTING FOR INSURANCE AND REINSURANCE CONTRACTS THAT DO NOT
7
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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 June 30,
2000, the Company had unearned premiums totaling $13,528,072.
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 six months ended June
30, 2000 totaled $534,929.
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 June 30, 2000, the Company has substantially complied with the
requirements related to the bonus payments. 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 June 30, 2000, deferred policy acquisition costs
amounted to $2,392,413.
An allowance for uncollectible premiums receivable is established when it
becomes evident collection is doubtful. No allowance is deemed necessary at June
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
expenses includes: (1) the accumulation of individual case estimates for claims
and claims adjustment expenses reported prior to the close of the accounting
8
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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 June 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.
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%.
9
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The Company has the option to retroactively increase the annual cession to 75%
or retroactively reduce the cession to 45%. For the quarter ended June 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 $62,500,000. 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 excess of $40,000,000.
The ceded reinsurance arrangements had the following effect on certain items in
the accompanying consolidated financial statements:
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
JUNE 30, 2000 JUNE 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 $ 3,929,433 $11,808,568 $13,075,068 $2,339,424 $4,932,294 $8,757,818
Assumed 37,806 (22,908) (22,908) 241,093 (40,312) 1,241,809
Ceded (2,366,427) (10,442,675) (9,398,014) (1,205,467) (3,638,045) (6,431,599)
------------ ------------ ------------ ----------- ----------- -----------
Net $1,600,812 $1,342,985 $3,654,146 $1,375,050 $1,253,937 $3,568,028
========== =========== ========== ========== ========== ===========
</TABLE>
10
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OTHER AMOUNTS:
June 30,
2000
----
Reinsurance recoverable on unpaid losses
and loss adjustment expenses $ 1,926,445
Unearned premiums reserve ceded 7,165,660
-------------
$ 9,092,105
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 June 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
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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. World
Financial Resources (Barbados) 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 will specialize in selling insurance via the Internet.
Tigerquote.com Insurance & Financial Services, Inc. will be an Internet
insurance company while Tigerquote.com Insurance Solutions, Inc. will be a
network of Internet insurance agencies. At June 30, 2000, agencies have been
established in 21 states. Separate legal entities are being formed for each
state and will be governed by the respective states' department of insurance.
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FINANCIAL CONDITION
Cash and cash equivalents at June 30, 2000 aggregated $12,415,504. 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 June
30, 2000 UPCIC's investments were comprised of $12,415,504 in cash and
repurchase agreements, $3,396,976 in fixed maturity securities and $398,074 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. 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 39,000 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 -SIX MONTHS ENDED JUNE 30, 2000 VERSUS SIX MONTHS ENDED
JUNE 30, 1999
Gross premiums written increased 139.4% to $11,808,568 for the six
month period ended June 30, 2000 from $4,932,294 for the six month period ended
June 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 increased 7.1% to $1,342,985 for the six month
period ended June 30, 2000 from $1,253,937 for the six month period ended June
30, 1999. The increase in rates for gross and net premiums written reflects the
impact of reinsurance since $10,442,675 or 88.4% of premiums written were ceded
to reinsurers for the six month period ended June 30, 2000 as compared to
$3,638,045 or 73.8% for the six month period ended June 30, 1999. Net premiums
written increased at a lower rate than gross premiums as a result of the costs
of the reinsurance program relative to premium base in 2000 and a higher rate of
cession on the quota share reinsurance treaty.
Net premiums earned increased 2.4% to $3,654,146 for the six month
period ended June 30, 2000 from $3,568,028 for the six month period ended June
30, 1999. The increase in net premiums earned is primarily attributable to the
Company's effort to solicit business in the open market through independent
agents. However, as compared to gross written premiums the increase is mitigated
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<PAGE>
due 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.
Commission income increased 19.9% to $644,797 for the six month period
ended June 30, 2000 from $537,758 for the six month period ended June 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 78.4% to $520,435 for the six month
period ended June 30, 2000 from $291,803 for the six month period ended June 30,
1999. The increase is primarily due to gains recognized on the sale of equity
securities in the six months ended June 30, 2000.
Losses and loss adjustment expenses ("LAE") incurred increased 16.4% to
$1,600,812 for the six month period ended June 30, 2000 from $1,375,050 for the
six month period ended June 30, 1999 as compared to net premiums earned which
increased 2.4% to $3,654,146 for the six month period ended June 30, 2000 from
$3,568,028 for the six month period ended June 30, 1999. The Company's loss
ratio, in accordance with GAAP, for the six month period ended June 30, 2000 was
43.8% compared to 38.5% for the six month period ended June 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 27.0% to $2,493,649 for
the six month period ended June 30, 2000 from $1,962,874 for the six month
period ended June 30, 1999. A significant portion of this increase was in the
second quarter of 2000. General and administrative expenses have increased due
to further development of the Company's insurance operations. Approximately
$500,000 of general and administrative expenses has been incurred in developing
the Company's insurance Internet initiative, the majority of which was incurred
in the second quarter of 2000.
14
<PAGE>
RESULTS OF OPERATIONS-THREE MONTHS ENDED JUNE 30, 2000 VERSUS THREE MONTHS ENDED
JUNE 30, 1999
Gross premiums written increased 215.7% to $6,315,353 for the three
month period ended June 30, 2000 from $2,000,273 for the three month period
ended June 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 increased 43.8% to $1,606,697 for the three month
period ended June 30, 2000 from $1,117,217 for the three month period ended June
30, 1999. The increase in net premiums earned is primarily attributable to the
Company's effort to solicit business in the open market through independent
agents. However, as compared to gross written premiums the increase is mitigated
due 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.
Commission income increased 91.7% to $313,788 for the three month
period ended June 30, 2000 from $163,666 for the three month period ended June
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 130.8% to $326,687 for the three
month period ended June 30, 2000 from $141,495 for the three month period ended
June 30, 1999. The increase is primarily due to gains recognized on the sale of
equity securities in the three months ended June 30, 2000.
Losses and loss adjustment expenses ("LAE") incurred increased 128.4%
to $711,876 for the three month period ended June 30, 2000 from $311,653 for the
three month period ended June 30, 1999 as compared to net premiums earned which
increased 43.8% to $1,606,697 for the three month period ended June 30, 2000
from $1,117,217 for the three month period ended June 30, 1999. The Company's
loss ratio, in accordance with GAAP, for the three month period ended June 30,
2000 was 44.3% compared to 27.9% for the three month period ended June 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 148.5% to $1,417,054 for
the three month period ended June 30, 2000 from $570,619 for the three month
period ended June 30, 1999. General and administrative expenses have increased
due to further development of the Company's insurance operations. Approximately
$500,000 of general and administrative expenses has been incurred in developing
the Company's insurance Internet initiative, the majority of which was incurred
in the second quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital are premium revenues and
15
<PAGE>
investment income.
For the six month period ended June 30, 2000, cash flows used in
operating activities were $3,085,505 primarily due to the relatively smaller
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
both the short-term and 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.
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 June 30, 2000 is
$12,415,504. This amount along with readily marketable debt and equity
securities aggregating $3,795,050 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 $6,001,589 as of June 30,
2000. Statutory net income was $711,935 for the six month period ended June 30,
2000 and $989,592 for the six month period ended June 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. Pursuant to an agreement
between the Company and NJV Associates, Inc. ("NJV"), the Company agreed to
issue 200,000 warrants to Nunzio J. Valerie, Jr. to purchase shares of common
stock at exercise prices ranging from $1.00 to $3.25 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.
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: August 11, 2000 /s/ Bradley I. Meier
--------------------
Bradley I. Meier, President
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<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
six month and three month periods ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
JUNE 30, 2000 JUNE 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 $724,917 $1,059,665
Less: Preferred stock dividends (24,976) (24,976)
-------- ------
Income available to common
stockholders 699,941 14,795,000 $0.05 $1,034,689 14,673,000 $0.07
===== =====
Effect of dilutive securities:
Stock options and warrants --- 605,000 --- --- 529,000 ---
Preferred stock 24,976 568,000 --- 24,976 568,000 ---
------ ------- ------ ------ ------- ------
Income available to common
stockholders and assumed
conversion $724,917 15,968,000 $ 0.05 $1,059,665 15,770,000 $0.07
========= ========== ====== ========== ========== ======
</TABLE>
Options and warrants totaling 10,382,000 and 9,999,000 were excluded from the
calculation of diluted earnings per share as their effect was anti-dilutive for
the six months ended June 30, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
JUNE 30, 2000 JUNE 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 $118,242 $540,556
Less: Preferred stock dividends (12,488) (12,488)
-------- ------
Income available to common
stockholders 105,754 14,795,000 $0.01 $528,068 14,673,000 $0.04
===== =====
Effect of dilutive securities:
Stock options and warrants --- 49,000 --- --- 613,000 (0.01)
Preferred stock 12,488 568,000 --- 12,488 568,000 ---
------ ------- ------ ------ ------- ------
Income available to common
stockholders and assumed
conversion $118,242 15,412,000 $ 0.01 $540,556 15,854,000 $0.03
========= ========== ====== ======== ========== ======
</TABLE>
Options and warrants totaling 10,938,000 and 9,915,000 were excluded from the
calculation of diluted earnings per share as their effect was anti-dilutive for
the three months ended June 30, 2000 and 1999, respectively.
19
