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 March 31, 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
---
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 three months ended March 31, 2000 are not necessarily
indicative of the results for the year ending December 31, 2000.
2
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(Unaudited)
ASSETS
Debt securities held-to-maturity (fair value of $2,927,685) $ 3,053,080
Equity securities available for sale (cost of $429,888) 882,284
Cash and cash equivalents 13,138,625
Prepaid reinsurance premiums 8,512,149
Premiums and other receivables 928,385
Deferred policy acquisition costs 2,792,141
Property, plant and equipment, net 334,145
-----------
Total assets $29,640,809
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses $ 3,166,613
Unearned premiums 14,208,580
Accounts payable 1,246,639
Other accrued expenses 994,832
Accrued taxes, licenses and fees 116,250
Due to related parties 314,756
-----------
Total liabilities $20,047,670
===========
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 15,095,741
Accumulated deficit (6,095,331)
Accumulated other comprehensive income 443,396
-----------
Total stockholders' equity 9,593,139
-----------
Total liabilities and stockholders' equity $29,640,809
===========
The accompanying notes to consolidated financial statements are an integral part of these statements.
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Three Months Ended
March 31, March 31,
2000 1999
---- ----
PREMIUMS EARNED AND OTHER REVENUES:
Premium income, net $ 2,047,449 $ 2,450,811
Net investment income 193,748 145,603
Commission revenue 560,461 378,798
-------------- --------------
Total revenues 2,801,658 2,975,212
-------------- --------------
OPERATING COST AND EXPENSES:
Losses and loss adjustment expenses 888,936 1,063,397
General and administrative expenses 1,306,047 1,392,706
-------------- --------------
2,194,983 2,456,103
Total operating expenses -------------- --------------
$ 606,675 $ 519,109
NET INCOME ============== ==============
INCOME PER COMMON SHARE: $ 0.04 $ 0.03
Basic ============= ==============
WEIGHTED AVERAGE COMMON SHARES 14,795,000 14,673,000
OUTSTANDING - BASIC ============= ==============
INCOME PER COMMON SHARE: $ 0.04 $ 0.03
Diluted ============= ==============
WEIGHTED AVERAGE COMMON SHARES 16,590,000 15,686,000
OUTSTANDING - DILUTED ============= ==============
The accompanying notes to consolidated financial statements are an integral part of these statements.
4
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(Unaudited)
For Three Months For Three Months
Ended Ended
March 31, March 31,
2000 1999
---- ----
NET INCOME $ 606,675 $ 519,109
OTHER COMPREHENSIVE INCOME:
Change in net unrealized gain on
available-for-sale securities 210,169 46,720
--------- ---------
COMPREHENSIVE INCOME $ 816,844 $ 565,829
========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements.
5
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Three Months Ended
March 31, March 31,
2000 1999
---- ----
CASH FLOWS FROM INVESTING ACTIVITIES:
Net income $ 606,675 $ 519,109
Adjustments to reconcile net income
to cash provided by operations:
Amortization and depreciation 17,008 -
Gain on sales of equity securities available-for-sale (16,029) -
Warrants issued in lieu of payments 6,000 -
Net change in assets and liabilities relating to operating activities:
Prepaid reinsurance premiums (1,643,724) 8,012,128
Other receivables and deposits (46,548) (1,453,655)
Reinsurance recoverable on losses - (8,509,404)
Deferred policy acquisition costs (271,265) (1,024,428)
Accounts payable (323,116) (119,069)
Accrued expenses (654,906) (707,861)
Accrued taxes, licenses and fees (98,012) 115,000
Unpaid losses and loss adjustment expenses 102,225 147,144
Unearned premiums (585,992) (885,432)
Due to/from related parties and other 294,715 (116,507)
----------- ----------
Net cash used in operating activities (2,612,969) (4,022,975)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (107,792) 73,765
Purchase of equity securities available-for-sale (412,370) -
Proceeds from sale of equity securities available-for-sale 233,995 107,598
Purchase of debt securities held-to-maturity (339,034) -
Proceeds from maturities of debt securities held-to-maturity 116,301 87,389
Payments for notes receivable - 250,000
------------ ----------
Net cash (used in) provided by investing activities (508,900) 518,752
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividend (12,488) (12,488)
------------ ----------
Net cash used in financing activities (12,488) (12,488)
NET DECREASE IN CASH AND CASH
EQUIVALENTS (3,134,357) (3,516,711)
CASH AND CASH EQUIVALENTS, Beginning of period 16,272,982 11,987,091
------------ ----------
CASH AND CASH EQUIVALENTS, End of period $ 13,138,625 $8,470,380
------------ ----------
The accompanying notes to consolidated financial statements are an integral part of these statements.
6
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 Company continues to develop into a vertically integrated insurance holding
company performing various aspects of insurance underwriting, distribution and
claims. Universal Risk Advisors, Inc., the Company's wholly-owned Managing
General Agent ("MGA"), was incorporated in Florida on July 2, 1998 and became
licensed by the DOI on September 28, 1998. Through the MGA, the Company has
underwriting and claims authority for UPCIC as well as third-party insurance
companies. In addition, Universal Risk Life Advisors, Inc. was incorporated in
Florida on June 1, 1999 as the Company's wholly-owned managing general agent for
life insurance products. The MGA seeks to generate revenue through policy fee
income and other administrative fees from the marketing of UPCIC's as well as
third party insurance products through the Company's distribution network. The
Company markets and distributes UPCIC's products and services primarily in
Florida, through a network of approximately 860 active independent agents. The
Company believes that it can be distinguished from its competitors by providing
quality service to both its agents and insureds.
Universal Florida Insurance Agency was incorporated in Florida on July 2, 1998
and U.S. Insurance Solutions, Inc. was incorporated in Florida on August 4, 1998
as wholly-owned subsidiaries of the Company, to solicit voluntary business.
These two entities are the foundation of the Company's agency operations which
seek to generate income from policy fees, commissions, premium financing
referral fees and the marketing of ancillary services. U.S.A. Insurance
Solutions Inc., was incorporated in Florida on December 10, 1998 as a
wholly-owned subsidiary of U.S. Insurance Solutions, Inc. to acquire the assets
of an insurance agency.
The Company has formed an Internet holding company and affiliated subsidiaries
that will specialize in selling insurance via the Internet. Tigerquote.com
Insurance & Financial Group, Inc. and Tigerquote.com Insurance Solutions, Inc.
were incorporated in Delaware on June 6, 1999 and August 23, 1999, respectively.
Tigerquote.com Insurance & Financial Group, Inc. will be an internet insurance
company while Tigerquote.com Insurance Solutions, Inc. will be a network of
internet insurance agencies. Operating subsidiaries have been established in
Pennsylvania, Texas, Arizona, Nevada, Oregon, Washington, California, Illinois,
Iowa, Wisconsin, Vermont and Tennessee. Separate legal entities are being formed
for each state and will be governed by the respective states' department of
insurance.
7
On August 31, 1998 World Financial Resources (Barbados) LTD. ("WFR") was
incorporated as a subsidiary of UHTS to participate in contingent capital
products. The Company has also formed a claims adjusting company, Universal
Adjusting Corporation, which was incorporated in Delaware on August 9, 1999.
Universal Adjusting Corporation currently has claims authority for Universal
Property & Casualty Insurance Company claims.
The consolidated balance sheet of the Company as of March 31, 2000 and the
related consolidated statements of operations and cash flows for three months
ended March 31, 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 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 thus should be read in conjunction with the
Company's annual statements.
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.
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 December 1997, the American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position 97-3,
ACCOUNTING BY INSURANCE AND OTHER ENTERPRISES FOR INSURANCE AND
REINSURANCE-RELATED ASSESSMENTS ("SOP 97-3"). SOP 97-3 provides guidance on the
recognition and measurement of liabilities for guaranty-fund and other insurance
related assessments. SOP 97-3 is effective for financial statements for fiscal
years beginning after December 15, 1998. The effect of the initial adoption of
SOP 97-3 is required to be reported in a manner similar to the reporting of a
cumulative effect of a change in accounting principle. The adoption of SOP 97-3
did not have a material impact on the Company's financial condition or results
of operations or cash flows.
In April 1998, the AICPA issued SOP 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES. This SOP provides guidance on the financial reporting of start-up
costs and organization costs and requires such costs to be expensed as incurred.
This SOP is effective for financial statements for fiscal years beginning after
December 15, 1998. The Company adopted SOP 98-5 effective January 1, 1999.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. Among other
provisions, SFAS No. 133 establishes accounting and reporting standards for
8
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 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. SOP 98-7 is effective for financial
statements for fiscal years beginning after June 15, 1999, with earlier adoption
encouraged. The effect of the initial adoption of SOP 98-7 is required to be
reported as a cumulative effect of a change in accounting principle. 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 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 March 31,
2000, the Company recorded $14,208,580 in connection with unearned premiums.
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 three months ended
March 31, 2000 have been recorded at $ 179,402.
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.
To date, 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,
9
but only to the extent that unearned premiums are sufficient to cover all
related costs and expenses. At March 31, 2000, deferred policy acquisition costs
amounted to $2,792,141.
An allowance for uncollectible premiums receivable will be established when it
becomes evident collection is doubtful. No allowance is deemed necessary at
March 31, 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
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 March 31,
2000 was approximately $3.6 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
10
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, 1999, 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 currently cedes 50% 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%. In addition, the quota share treaty
has a limitation for any one occurrence of $15,000,000. 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, 1999, under an excess catastrophe contract, UPCIC obtained
coverage of $39,000,000 in excess of $2,000,000. UPCIC also obtained variable
coverage of $2,000,000 in excess of the Company's 100-year probable maximum
loss.
UPCIC also obtained coverage from the Florida Hurricane Catastrophe Fund, which
is estimated to be $45,300,000. In addition, in the event a hurricane were to
decrease the limits of catastrophe cover, UPCIC purchased contingency coverage
to replace the Florida Hurricane Catastrophe Cover for losses of $47,600,000
excess of $47,600,000 otherwise recoverable excess of $11,300,000.
The ceded reinsurance arrangements had the following effect on certain items in
the accompanying consolidated financial statements:
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
Unpaid Loss Unpaid Loss
and Loss and Loss
Adjustment Premiums Premiums Adjustment Premiums Premiums
Expenses Written Earned Expenses Written Earned
----------- -------- -------- ---------- -------- --------
Direct $ 1,745,401 $ 5,493,215 $ 6,079,207 $ 1,964,439 $ 2,932,021 $ 4,139,296
Assume 15,350 (22,908) (22,908) 162,355 - 867,649
Ceded (871,815) (3,408,126) (4,008,850) (1,063,397) (1,070,188) (2,556,134)
------------ ------------ ------------ ------------ ------------ ------------
Net $ 888,936 $ 2,062,181 $ 2,047,449 $ 1,063,397 $ 1,861,833 $ 2,450,811
============ ============ ============ ============ ============ ============
11
OTHER AMOUNTS:
March 31,
2000
----
Reinsurance recoverable on unpaid losses
and loss adjustment expenses $ 1,583,307
Unearned premiums reserve ceded 6,928,842
-----------
$ 8,512,149
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 March 31, 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 - SUBSEQUENT EVENT
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.
Item 2. Management's Discussion and Analysis of Financial Conditions and
- ------ ----------------------------------------------------------------
Results of Operations
- ---------------------
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 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.
12
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 Insurance 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 approved by the Florida Department of Insurance ("DOI") 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 became 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 approved a number of initiatives to
depopulate the JUA, which resulted in policies being acquired by private
insurers and provided 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 were 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 the 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
Florida. UPCIC's surplus at March 31, 2000 is $5,828,283.
UPCIC's initial business and operations consisted of providing property
and casualty coverage through homeowners' insurance policies acquired through
the JUA. UPCIC entered into agreements with the JUA whereby during 1998 UPCIC
assumed approximately 30,000 policies. In addition, UPCIC has received
approximately $90 per policy in bonus incentive funds from the JUA for assuming
the policies. The bonus funds must be maintained in an escrow account for three
years. UPCIC must not cancel the policies from the JUA for this three year
period at which point UPCIC will receive the bonus money.
The Company continues to develop into 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.
13
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. The Company has
also formed subsidiaries that will specialize in selling insurance via the
Internet. 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.
FINANCIAL CONDITION
Cash and cash equivalents at March 31, 2000 aggregated $13,138,625. 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
March 31, 2000 UPCIC's investments were comprised of $13,138,625 in cash and
repurchase agreements, $3,053,080 in fixed maturity securities and $882,284 in
equities.
UPCIC does not expect to participate in takeouts of additional policies
from the JUA. The policies obtained from the 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. 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 31,000 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 - THREE MONTHS ENDED MARCH 31, 2000 VERSUS
THREE MONTHS ENDED MARCH 31, 1999
Gross premiums written increased 87.4% to $5,493,215 for the three month
period ended March 31, 2000 from $2,932,021 for the three month period ended
March 31, 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.
14
Net premiums written increased 10.8% to $2,062,181 for the three month
period ended March 31, 2000 from $1,861,833 for the three month period ended
March 31, 1999. The increase in rates for gross and net premiums written
reflects the impact of reinsurance since $3,408,126 or 62.0% of premiums written
were ceded to reinsurers for the three month period ended March 31, 2000 as
compared to $1,070,188 or 36.5% for the three month period ended March 31, 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.
Net premiums earned decreased 16.5% to $2,047,449 for the three month
period ended March 31, 2000 from $2,450,811 for the three month period ended
March 31, 1999. The decrease in net premiums earned is primarily attributable to
policies assumed from the JUA as part of the Takeout Program that did not renew
with the Company during 1999.
Commission income increased 48.0% to $560,461 for the three month period
ended March 31, 2000 from $378,798 for the three month period ended March 31>
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 33.1% to $193,748 for the three month
period ended March 31, 2000 from $145,603 for the three month period ended March
31, 1999. The increase is primarily due to gains recognized on the sale of
equity securities in the quarter ended March 31, 2000.
Losses and loss adjustment expenses ("LAE") incurred decreased 16.4% to
$888,936 for the three month period ended March 31, 2000 from $1,063,397 for the
three month period ended March 31, 1999 as compared to net premiums earned which
decreased 16.5% to $2,047,449 for the three month period ended March 31, 2000
from $2,450,811 for the three month period ended March 31, 1999. The Company's
loss ratio, in accordance with GAAP, for the three month period ended March 31,
2000 was 43.4% compared to 43.4% for the three month period ended March 31,
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 decreased 6.2% to $1,306,047 for the
three month period ended March 31, 2000 from $1,392,706 for the three month
period ended March 31, 1999. General and administrative expenses have increased
due to further development of the Company's insurance operations. However, this
increase has been mitigated by the higher ceding commission obtained in 2000 to
offset expenses on the Company's quota share reinsurance contract.
15
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital are premium revenues and
investment income.
For the three month period ended March 31, 2000, cash flows from operating
activities were $(2,612,969), primarily due to the relatively smaller premium
base with renewals in the first quarter of the year. Cash flow 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.
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 March 31, 2000 is $13,138,625.
This amount along with readily marketable debt and equity securities aggregating
$3,935,364 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 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. Generally accepted accounting
principles differ in some respects from reporting practices prescribed or
permitted by the Florida Department of Insurance. UPCIC's statutory capital and
16
surplus was $5,828,283 as of March 31, 2000. Statutory net income was $206,910
for the three month period ended March 31, 2000 and $511,060 for the three month
period ended March 31, 1999.
UNIVERSAL HEIGHTS, INC.
-----------------------
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings
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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
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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.
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 Tigerquote.com at an exercise price of $.60 per share. 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 20, 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. 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
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None.
Item 4. Submission of Matters to a Vote of Security Holders
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None.
Item 5. Other Information
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None.
Item 6. Exhibits and Reports on Form 8-K
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None.
17
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: May 15, 2000 /s/ Bradley I. Meier
--------------------
Bradley I. Meier, President
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