UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
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 000-20848
UNIVERSAL INSURANCE HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 65-0231984
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1110 W. Commercial Blvd.
Suite 100
Fort Lauderdale, Florida 33309
(Address of principal executive offices)
(954) 958-1200
(Issuer's telephone number)
2875 N.E. 191st Street
Suite 302
Miami, FL 33180
(former address)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date: 36,463,219 shares of common
stock as of November 14, 2005.
Transitional Small Business Disclosure Format Yes No X
-- --
UNIVERSAL INSURANCE HOLDINGS, INC.
----------------------------------
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
The following unaudited consolidated financial statements of Universal
Insurance Holdings, Inc. 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 conformity
with accounting principles generally accepted in the United States of America.
In the opinion of management, all adjustments (consisting primarily 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, 2005 are not necessarily
indicative of the results for the year ending December 31, 2005.
2
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2005
(Unaudited)
ASSETS
Cash and cash equivalents $ 37,329,866
Reinsurance recoverables 51,575,839
Premiums and other receivables (net of allowance for doubtful
accounts of $43,500) 4,173,932
Real estate 3,142,732
Property and equipment, net 1,022,432
Other assets 1,036,767
-------------
Total assets $ 98,281,568
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses $ 18,776,134
Unearned premiums 43,781,828
Accounts payable 2,383,514
Reinsurance payable 22,889,006
Other accrued expenses 1,948,566
Loans payable 1,262,908
-------------
Total liabilities 91,041,956
-------------
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,
36,463,219 shares issued and 33,354,574 shares outstanding 286,038
Common stock in treasury, at cost - 208,645 shares (101,819)
Additional paid-in capital 15,184,331
Accumulated deficit (8,130,325)
-------------
Total stockholders' equity 7,239,612
-------------
Total liabilities and stockholders' equity $ 98,281,568
=============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
3
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2005 2004 2005 2004
---- ---- ---- ----
PREMIUMS EARNED AND OTHER REVENUES:
Premium income, net $ 9,853,100 $ 3,331,995 $ 5,878,040 $ 1,208,937
Net investment income 655,018 12,115 328,449 (27,704)
Commission revenue 1,839,828 1,245,147 703,435 496,532
Transaction fees 272,872 1,528,861 112,720 340,630
Other revenue 257,174 414,575 165,187 6,834
------------- ------------ ------------ ------------
Total revenues 12,877,992 6,532,693 7,187,831 2,025,229
------------- ------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses 3,690,294 2,273,934 3,244,879 1,733,470
General and administrative expenses 5,251,968 4,660,376 1,026,093 860,057
------------- ------------ ------------ ------------
Total operating costs and expenses 8,942,262 6,934,310 4,270,972 2,593,527
------------- ------------ ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES 3,935,730 (401,617) 2,916,859 (568,298)
------------- ------------ ------------ ------------
Federal income taxes 78,715 - 78,715 -
------------- ------------ ------------ ------------
NET INCOME (LOSS) $ 3,857,015 $ (401,617) $ 2,838,144 $ (568,298)
============= ============ ============ ============
INCOME (LOSS) PER COMMON SHARE: $ 0.12 $ (0.01) $ 0.08 $ (0.02)
Basic ============ =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES 32,808,000 30,214,000 33,355,000 31,300,000
OUTSTANDING - BASIC ============= ============ ============ ============
INCOME (LOSS) PER COMMON SHARE $ 0.11 $ (0.01) $ 0.08 $ (0.02)
Diluted ============= ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES 33,563,000 30,214,000 34,151,000 31,300,000
OUTSTANDING - DILUTED ============= ============ ============ ============
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
4
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2005 2004 2005 2004
---- ---- ---- ----
NET INCOME (LOSS) $ 3,857,015 $ (401,617) $ 2,838,144 $ (568,298)
OTHER COMPREHENSIVE INCOME:
Change in net unrealized gain on
available-for-sale securities - 26,657 - -
------------ ------------- ------------ ------------
COMPREHENSIVE INCOME (LOSS) $ 3,857,015 $ (374,960) $ 2,838,144 $ (568,298)
================================================================
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
5
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
----------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,857,015 $ (401,617)
Adjustments to reconcile net income (loss)
to cash provided by operations:
Amortization and depreciation 235,343 305,453
Issuance of common stock as compensation 90,466 140,749
Gain on disposal of assets - (19,280)
Net change in assets and liabilities relating to operating activities:
Prepaid reinsurance premiums and reinsurance recoverables 35,897,545 (72,795,312)
Premiums and other receivables (2,895,421) (127,919)
Reinsurance payables (183,923) 24,297,879
Accounts payable (1,138,997) 103,118
Other accrued expenses 337,324 1,800,134
Unpaid losses and loss adjustment expenses (39,095,817) 70,406,860
Unearned premiums 19,891,968 4,823,366
Other assets (820,278) (479,782)
--------------- ----------------
Net cash provided by operating activities 16,175,225 28,053,649
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net capital expenditures (321,181) 221,080
Proceeds from maturities of debt securities held to maturity - 100,000
Proceeds from sale of equity securities available for sale - 194,976
Purchase of real estate (1,489,321) (1,668,429)
Sale of real estate - 140,022
--------------- ----------------
Net cash used in investing activities (1,810,502) (1,012,351)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividend (37,464) (37,460)
Repayments of loans payable (480,905) (507,777)
Proceeds from loans payable 1,039,933 625,000
--------------- ----------------
Net cash provided by financing activities 521,564 79,763
--------------- ----------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 14,886,287 27,121,061
CASH AND CASH EQUIVALENTS, Beginning of period 22,443,579 8,011,278
--------------- ----------------
CASH AND CASH EQUIVALENTS, End of period $ 37,329,866 $ 35,132,339
--------------- ----------------
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
6
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
NOTE 1 -- NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements include the
accounts of Universal Insurance Holdings, Inc. ("Company"), its wholly owned
subsidiary, Universal Property & Casualty Insurance Company ("UPCIC") and other
wholly owned entities and the Universal Insurance Holdings, Inc. Stock Grantor
Trust. All intercompany accounts and transactions have been eliminated in
consolidation.
The condensed consolidated balance sheet of the Company as of September 30,
2005, the related condensed consolidated statements of operations and
comprehensive income for the three and nine months ended September 30, 2005 and
2004 and cash flows for the nine months ended September 30, 2005 and 2004 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, 2004. The interim financial statements reflect all
adjustments (consisting primarily of 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 accounting principles
generally accepted in the United States of America 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.
OFF -BALANCE SHEET ARRANGEMENTS. There were no off-balance sheet arrangements
during the first nine months of 2005.
NEW ACCOUNTING PRONOUNCEMENTS. In December 2002, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND
DISCLOSURE. This Statement, which is effective for years ending after December
15, 2002, amends Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, and
provides alternative methods of transition for a voluntary change to the fair
value-based method of accounting for stock-based employee compensation. In
addition, Statement No. 148 amends the disclosure requirements of Statement No.
123 regardless of the accounting method used to account for stock-based
compensation. The Company has chosen to continue to account for stock-based
compensation of employees using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations. However, the enhanced disclosure
provisions as defined by SFAS No. 148 which became effective in the first
quarter of 2003 have been implemented. In December 2004, the FASB issued SFAS
No. 123 (revised 2004) ("SFAS No. 123R") SHARE-BASED PAYMENT, which replaces
7
SFAS. No. 123 and supersedes APB No. 25. As a result of SFAS No. 123R, the
Company will be required to recognize the cost of its stock options as an
expense in the consolidated statement of operations beginning in the first
quarter of 2006. The Company is currently assessing the impact that the adoption
of SFAS No. 123R will have on the consolidated results of operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES. Management has reassessed the
critical accounting policies as disclosed in our 2004 Annual Report to
Stockholders on Form 10-KSB and determined that no changes, additions or
deletions are needed to the policies as disclosed. Also there were no
significant changes in our estimates associated with those policies.
RISKS AND UNCERTAINTIES. The Company's business could be affected by regulatory
and competitive restrictions on pricing for new and renewal business, the
availability and cost of catastrophic reinsurance, adverse loss experience and
federal and state legislation or governmental regulations of insurance
companies. Changes in these areas could adversely affect the Company's
operations in the future.
Management continues to take action to improve and strengthen UPCIC's financial
condition. Premium rate increases have been implemented. UPCIC changed the
geographic and coverage mix of the property insurance it writes, which is a key
determinant in the amount and pricing of reinsurance procured by UPCIC. The
Company achieved favorable ceding commission terms on its quota share
reinsurance program effective June 1, 2005.
In addition to the actions described above, effective May 1, 2004 the Company
brought in house the system it utilizes for policy issuance and administration.
This has enhanced UPCIC's operating results through its ability to improve and
better control underwriting and loss adjusting activities.
Management believes the implementation of, and results attributable to, the
actions described above will continue to strengthen UPCIC's surplus. However,
there can be no assurance of the ultimate success of these plans, or that the
Company will be able to maintain profitability.
NOTE 2 -- RESULTS OF OPERATIONS
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,
2005, the Company had unearned premiums totaling $43,781,828.
8
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 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, 2005, deferred policy acquisition costs amounted
to $0 due to the effect of deferred reinsurance commissions.
An allowance for uncollectible premiums receivable is established when it
becomes evident collection is doubtful, typically after 90 days past due. No
allowance is deemed necessary at September 30, 2005.
Loss and loss adjustment expenses ("LAE"), less related reinsurance, are
provided for as claims are incurred. The provision for unpaid loss and loss
adjustment expenses includes: (1) the accumulation of individual case estimates
for loss and LAE 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. The Company's net loss ratio has decreased from the
prior year due to lower frequency and severity of claims. During the third
quarter of 2004, Florida experienced four windstorm catastrophes (Hurricanes
Charley, Frances, Ivan and Jeanne) which resulted in losses. As a result of
these storms, the Company estimated it incurred approximately $148,500,000 in
losses prior to reinsurance and $1,600,000 net of reinsurance for the year ended
December 31, 2004. UPCIC currently reports approximately 200 open claims out of
nearly 11,000 reported from the four hurricanes. During the third quarter of
2005, Florida experienced two windstorm catastrophes (Hurricanes Dennis and
Katrina) which resulted in losses. As a result of these storms, the Company
estimates it incurred approximately $4,800,000 in losses prior to reinsurance
and $1,800,000 net of reinsurance for the nine months ended September 30, 2005.
On October 24, 2005, Florida experienced windstorm catastrophe Wilma which
resulted in estimated losses of approximately $38,000,000 prior to reinsurance
and $1,350,000 net of reinsurance. The expenses for Hurricane Wilma will be
reflected in the fourth quarter.
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 period in which the revision
of these estimates first becomes known. UPCIC estimates claims and claims
expenses based on its historical experience and payment and reporting patterns
for the type of risk involved. These estimates are continuously reviewed by
UPCIC's 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.
9
ONLINE COMMERCE OPERATIONS
The Company has formed subsidiaries that specialize, or will specialize, in
selling insurance and generating insurance leads via the Internet.
Tigerquote.com Insurance & Financial Services Group, Inc. ("Tigerquote.com") and
Tigerquote.com Insurance Solutions, Inc. were incorporated in Delaware on June
6, 1999 and August 23, 1999, respectively. Tigerquote.com is an Internet
insurance lead generating network while Tigerquote.com Insurance Solutions, Inc.
is a network of Internet insurance agencies. These entities seek to generate
income from the selling of leads and commissions on policies written.
CORPORATE AND OTHER OPERATIONS
Operating segments that are not individually reportable based on the current
operations in such segments, are included in Corporate and Other. The segment
currently includes the operations of Universal Insurance Holdings, Inc., Tiger
Home Services, Inc. and other entities. During 2001, the Company formed Tiger
Home Services, Inc., which furnishes pool services to homeowners. The services
were offered to commercial and residential customers in certain areas in the
state of Florida. During the third quarter of 2004, the Company sold the
landscaping division. During the second quarter of 2005, the Company sold the
pool division.
NOTE 3 -- REINSURANCE
UPCIC's in-force policyholder coverage for windstorm exposures as of September
30, 2005 was approximately $11.3 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 reinsurance contracts. Reinsurance premiums, losses and loss adjustment
expenses 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, 2005, UPCIC entered into a quota share reinsurance treaty and
excess per risk agreements with various reinsurers. Under the quota share
treaty, UPCIC cedes 55% of its gross written premiums, losses and loss
adjustment expenses for policies with coverage for wind risk with a ceding
commission equal to 31% of ceded gross written premium. In addition, the quota
share treaty has a limitation for any one occurrence of $3,000,000. Effective
June 1, 2005, UPCIC entered into a multiple line excess per risk agreement with
various reinsurers. Under the multiple line excess per risk agreement, UPCIC
obtained coverage of $1,300,000 in excess of $500,000 ultimate net loss for each
10
risk and each property loss, and $1,000,000 in excess of $300,000 for each
casualty loss. A $5,200,000 aggregate limit applies to the term of the contract.
Effective June 1, 2005, UPCIC entered into a property per risk excess agreement
covering ex-wind only policies. Under the property per risk excess agreement,
UPCIC obtained coverage of $300,000 in excess of $200,000 each property loss. A
$2,100,000 aggregate limit applies to the term of the contract.
Effective June 1, 2005, under an excess catastrophe contract, UPCIC obtained
catastrophe coverage of $46,000,000 in excess of $3,000,000 covering certain
loss occurrences including hurricanes. The contract contains one reinstatement.
UPCIC also obtained coverage from the Florida Hurricane Catastrophe Fund. The
approximate coverage is estimated to be for $86,700,000 in excess of
$25,700,000.
The ceded reinsurance arrangements had the following effect on certain items in
the accompanying consolidated financial statements:
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
------------------ ------------------
LOSS LOSS
AND LOSS AND LOSS
PREMIUMS PREMIUMS ADJUSTMENT PREMIUMS PREMIUMS ADJUSTMENT
WRITTEN EARNED EXPENSES WRITTEN EARNED EXPENSES
------- ------ -------- ------- ------ --------
Direct $60,982,474 $41,048,592 $28,299,109 $28,800,237 $23,976,872 $85,666,788
Ceded (37,341,229) (31,295,492) (24,608,815) (24,625,090) (20,644,877) (83,392,854)
------------ ------------ ------------ ------------ ------------ ------------
Net $23,641,245 $9,853,100 $3,690,294 $4,175,147 $3,331,995 $2,273,934
============ ============ ============ ============ ============ ============
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
------------------- ------------------
LOSS LOSS
AND LOSS AND LOSS
PREMIUMS PREMIUMS ADJUSTMENT PREMIUMS PREMIUMS ADJUSTMENT
WRITTEN EARNED EXPENSES WRITTEN EARNED EXPENSES
----------- ---------- ------------ ------- ------------ ----------
Direct $26,507,558 $17,193,370 $15,535,551 $12,733,064 $8,684,387 $82,609,481
Ceded (16,458,314) (11,315,330) (12,290,672) (12,269,376) (7,475,450) (80,876,011)
------------ ------------ ------------ ------------ ----------- ------------
Net $10,049,244 $5,878,040 $3,244,879 $463,688 $1,208,937 $1,733,470
============ ============ ============ ============ =========== ============
OTHER AMOUNTS:
SEPTEMBER 30, 2005
------------------
Reinsurance recoverable on paid and unpaid losses and loss
adjustment expenses $ 18,925,617
Unearned premiums ceded 26,473,252
Other reinsurance receivable 6,176,970
-----------------
Reinsurance recoverable $ 51,575,839
11
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, 2005. UPCIC
evaluates the financial condition of its reinsurers and monitors concentrations
of credit risk arising from 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 in only ceding risks to reinsurers whom it considers to be
financially sound combined with distribution of reinsurance contracts adequately
minimizes UPCIC's risk from any potential operating difficulties of its
reinsurers. In addition, UPCIC does not have any unauthorized reinsurers which
have recoverable balances that are not secured by a letter of credit or that
have ceded balances payable that are greater than the amount of the recoverable.
NOTE 4 -- EARNINGS PER SHARE
Earnings per share ("EPS") amounts are calculated in accordance with SFAS No.
128, EARNINGS PER SHARE. Basic EPS is based on the weighted average number of
shares outstanding for the period, excluding any dilutive common share
equivalents. Diluted EPS reflects the potential dilution that could occur if
securities to issue common stock were exercised.
A reconciliation of shares used in calculating basic and diluted EPS for the
nine month periods ended September 30, 2005 and September 30, 2004,
respectively, follows:
NINE MONTHS ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
------------------ ------------------
Basic EPS 32,808,000 30,214,000
Effect of assumed conversion of common
stock equivalents 755,000 0
------------------ ------------------
Diluted EPS 32,563,000 30,214,000
Options and warrants to purchase approximately 10,995,000 and 10,288,000 shares
of common stock were outstanding during the nine months ended September 30, 2005
and September 30, 2004, respectively. Such options and warrants could
potentially dilute basic EPS in the future but were excluded from the
computation of diluted earnings per share due to being anti-dilutive.
THREE MONTHS ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
------------------ ------------------
Basic EPS 33,355,000 31,300,000
Effect of assumed conversion of common
stock equivalents 796,000 0
------------------ ------------------
Diluted EPS 34,151,000 31,300,000
Options and warrants to purchase approximately 10,995,000 and 10,305,000 shares
of common stock were outstanding during the three months ended September 30,
12
2005 and September 30, 2004, respectively. Such options and warrants could
potentially dilute basic EPS in the future but were excluded from the
computation of diluted earnings per share due to being anti-dilutive.
NOTE 5 -- STOCK BASED COMPENSATION
Pursuant to SFAS No. 123, the Company elected to account for stock-based
compensation plans under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. Accordingly, no compensation expense was included
in the determination of net income for the nine months ended September 30, 2005
and September 30, 2004. Had compensation cost for stock options been recognized
based on the fair value at the grant dates for the options, consistent with the
provisions of SFAS No. 123, net income and earnings per share would have been as
indicated in the table below.
NINE MONTHS ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
------------------ ------------------
Net income (loss):
As reported $ 3,857,015 $ (401,617)
Compensation expense (26,357) (74,702)
------------- --------------
Pro forma 3,830,658 (476,319)
Net income (loss) per share:
Basic
As reported $0.12 ($0.01)
Compensation expense 0.00 (0.01)
------------- --------------
Pro forma $0.12 ($0.02)
Diluted
As reported $0.11 ($0.01)
Compensation expense 0.00 (0.01)
------------- --------------
Pro forma $0.11 ($0.02)
13
THREE MONTHS ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
------------------ ------------------
Net income (loss):
As reported $ 2,838,144 $(568,298)
Compensation expense (6,418) (23,717)
-------------- --------------
Pro forma 2,831,726 (592,015)
Net income (loss) per share:
Basic
As reported $0.08 ($0.02)
Compensation expense $0.00 $0.00
-------------- --------------
Pro forma $0.08 ($0.02)
Diluted
As reported $0.08 ($0.02)
Compensation expense $0.00 $0.00
-------------- --------------
Pro forma $0.08 ($0.02)
For the purposes of estimating the compensation cost of the Company's option
grants in accordance with SFAS No. 123, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model.
There were no option grants during the nine months ended September 30, 2005.
NOTE 6 -- SEGMENT INFORMATION
The Company and its subsidiaries operate principally in two business segments
consisting of insurance and online commerce. The insurance segment consists
primarily of underwriting through UPCIC, managing general agent operations
through Universal Risk Advisors, Inc., claims processing through Universal
Adjusting Corporation, property inspections through Universal Inspection
Corporation and marketing and distribution through Coastal Homeowners Insurance
Specialists, Inc. and Universal Florida Insurance Agency, Inc. The insurance
segment sells homeowner's insurance and includes substantially all aspects of
the insurance, distribution and claims process. The online commerce segment
consists of Internet insurance leads generated through Tigerquote.com and
commissions on policies placed by Tigerquote.com Insurance Solutions, Inc.
The accounting policies of the segments are the same as those described in the
summary of the significant accounting policies and practices. The Company
evaluates its business segments based on GAAP pretax operating earnings.
Corporate overhead expenses are allocated to business segments. Transactions
between reportable segments are accounted for at fair value.
Operating segments that are not individually reportable, based on the extent of
the current operations in such segments, are included in the "All Other"
category. The "All Other" category currently includes the operations of
Universal Insurance Holdings, Inc., Tiger Home Services, Inc. and other
entities.
14
Information regarding components of operations for the three months and nine
months ended September 30, 2005 and 2004 follows:
NINE MONTHS ENDED SEPTEMBER 30,
2005 2004
---- ----
Total revenue
Insurance segment $25,203,226 $8,822,520
Online commerce segment 278,891 1,594,636
Corporate and other 38,472 250,879
------------------- -------------------
Total operating segments 25,520,589 10,668,035
Intercompany eliminations (12,642,597) (4,135,342)
------------------- -------------------
Total revenues $12,877,992 $6,532,693
=================== ===================
Earnings (loss) before income taxes
Insurance segment $5,080,228 $801,740
Online commerce segment (81,593) (205,764)
Corporate and other (1,062,905) (997,593)
------------------- -------------------
Total earnings (loss) before income taxes $3,935,730 ($401,617)
=================== ===================
THREE MONTHS ENDED SEPTEMBER 30,
2005 2004
---- ----
Total revenue
Insurance segment $11,675,875 $3,701,522
Online commerce segment 117,877 348,750
Corporate and other (13,903) 50,980
------------------- -------------------
Total operating segments 11,779,849 4,101,252
Intercompany eliminations (4,592,018) (2,076,023)
------------------- -------------------
Total revenues $7,187,831 $2,025,229
=================== ===================
Earnings(loss) before income taxes
Insurance segment $3,230,266 ($153,170)
Online commerce segment 12,768 (281,968)
Corporate and other (326,175) (133,160)
------------------- -------------------
Total earnings (loss) before income taxes $2,916,859 ($568,298)
=================== ===================
Information regarding total assets as of September 30, 2005 and September 30, 2004:
15
Total assets
Insurance segment $112,608,102 $146,494,871
Online commerce segment 1,929,584 1,730,903
Corporate and other 29,252,500 23,680,330
------------------- -------------------
Total operating segments 143,790,186 171,906,104
Intercompany eliminations (45,508,618) (35,394,706)
------------------- -------------------
Total assets $98,281,568 $136,511,398
=================== ===================
NOTE 7 -- RELATED PARTY TRANSACTIONS
Dennis Downes and Associates, a multi-line insurance adjustment corporation
based in Deerfield Beach, Florida performs certain claims adjusting work for
UPCIC. Dennis Downes and Associates is owned by Dennis Downes, who is the father
of Sean P. Downes, COO, Senior Vice President and a director of the Company.
During the nine months ended September 30, 2005 and 2004, the Company paid
claims adjusting fees of $538,978 and $477,347 respectively, to Dennis Downes
and Associates.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ------ ---------------------------------------------------------
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 Condensed 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
Reform 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 Coastal Homeowners Insurance
Specialists, Inc., generate income from commissions. 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
16
third-party insurance products through the Company's distribution network and
UPCIC. 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 formed subsidiaries that specialize, or will specialize,
in selling insurance and generating insurance leads via the Internet.
Tigerquote.com Insurance & Financial Services Group, Inc. is an Internet
insurance lead generating network, and Tigerquote.com Insurance Solutions, Inc.,
is a network of Internet insurance agencies. At September 30, 2005, agencies
have been established in 21 states, none of which are currently active. Separate
legal entities have been formed for each state and are governed by the
respective states' departments of insurance.
The Company has also formed Tiger Home Services, Inc., which furnishes
pool services to homeowners. The services were previously offered to residential
customers in certain areas in the state of Florida. During the third quarter of
2004, the Company sold the landscaping division. During the second quarter of
2005, the Company sold the pool division.
FINANCIAL CONDITION
Cash and cash equivalents at September 30, 2005 aggregated $37,329,866.
The source of liquidity for possible claims payments consists of net premiums
after deductions for expenses, reinsurance recoverables and short-term loans.
UPCIC believes that premiums will be sufficient to meet UPCIC's working
capital requirements for at least the next twelve months. The Company's policy
is to invest amounts considered to be in excess of current working capital
requirements. At September 30, 2005, the Company's investments were comprised of
$37,329,866 in cash and repurchase agreements and $3,142,732 in real estate
consisting of a building purchased by UPCIC that the Company is currently using
as its home office.
Policies originally obtained from the Florida Residential Property and
Casualty Joint Underwriting Association ("JUA") provided the opportunity for
UPCIC to solicit future renewal premiums. Less than 20% of the policies obtained
from the JUA are currently renewed with the Company. UPCIC does not expect to
participate in takeouts of additional policies from the JUA. In 1998 the Company
began to solicit business actively in the open market in an effort to further
grow its insurance operations. Through renewal of JUA business combined with
business solicited in the market through independent agents, UPCIC is currently
servicing approximately 76,000 homeowners and dwelling fire insurance policies.
The Company, as noted above, diversified its operations by establishing
online commerce and other ancillary operations. However, the Company is
currently contemplating the sale of the online commerce division in order to
further focus on the core property and casualty insurance business.
17
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2005 VERSUS NINE
MONTHS ENDED SEPTEMBER 30, 2004
Gross premiums written increased 111.7% to $60,982,474 for the nine-month
period ended September 30, 2005 from $28,800,237 for the nine-month period ended
September 30, 2004. The increase in gross premiums written is primarily
attributable to an approximate 103.9% increase in new business as well as an
overall 7.8 % premium rate increase. The increase in new business is partially
attributable to the recent windstorm catastrophes providing an opportunity in
the otherwise competitive marketplace as certain companies are not accepting new
business.
Net premiums earned increased 195.7% to $9,853,100 for the nine-month
period ended September 30, 2005 from $3,331,995 for the nine-month period ended
September 30, 2004. The increase is due to an increase in new business, premium
rate increases and changes in the reinsurance program effective June 1, 2005.
Investment income increased 5,306.7% to $655,018 for the nine-month period
ended September 30, 2005 from $12,115 for the nine-month period ended September
30, 2004. The increase is primarily due to higher investment balances that
resulted from advances from reinsurers and a higher interest rate environment
during the nine-months ended September 30, 2005.
Transaction fee revenue decreased 82.2% to $272,872 for the nine-month
period ended September 30, 2005 from $1,528,861 for the nine-month period ended
September 30, 2004. The decrease is primarily due to decreased sales of on-line
insurance leads to insurance agents.
Other revenue decreased 38.0% to $257,174 for the nine-month period ended
September 30, 2005 from $414,575 for the nine-month period ended September 30,
2004. The decrease is primarily attributable to less activity in the direct
sales and service operations during the nine-month ended September 30, 2005.
Commission income increased 47.8% to $1,839,828 for the nine-month period
ended September 30, 2005 from $1,245,147 for the nine-month period ended
September 30, 2004. Commission income is comprised principally of the managing
general agent's policy fee income on all new and renewal insurance policies and
commissions generated from agency operations. The increase is primarily
attributable to an increase in commissions generated from agency operations on
new policies.
Net losses and loss adjustment expense ("LAE") incurred increased 62.3% to
$3,690,294 for the nine-month period ended September 30, 2005 from $2,273,934
for the nine-month period ended September 30, 2004. Losses and LAE incurred
increased due to increased exposure due to increased premium volume and changes
in the Company's reinsurance program effective June 1, 2005. The Company's net
loss ratio for the nine-month period ended September 30, 2005 was 37.5% compared
to 68.2% for the nine-month period ended September 30, 2004. Losses and LAE are
influenced by loss severity and frequency. The Company's net loss ratio
decreased principally due to the lower frequency and severity of claims in the
nine-month period ended September 30, 2005. Losses and LAE, the Company's most
significant expenses, represent actual payments made net of reinsurance and
18
changes in estimated future net payments to be made to or on behalf of its
policyholders, including expenses required to settle claims and losses.
Catastrophes are an inherent risk of the property-liability insurance
business which may contribute to material year-to-year fluctuations in UPCIC's
and the Company's results of operations and financial position. During the third
quarter of 2004, Florida experienced four windstorm catastrophes (Hurricanes
Charley, Frances, Ivan and Jeanne) which resulted in losses. As a result of
these storms, the Company estimated for the year ended December 31, 2004 it
incurred approximately $148,500,000 in losses prior to reinsurance and
$1,600,000 net of reinsurance. UPCIC currently reports approximately 200 open
claims out of nearly 11,000 reported from the four hurricanes. During the third
quarter of 2005, Florida experienced two windstorm catastrophes (Hurricanes
Dennis and Katrina) which resulted in losses. As a result of these storms, the
Company estimates it incurred approximately $4,800,000 in losses prior to
reinsurance and $1,800,000 net of reinsurance for the nine months ended
September 30, 2005. On October 24, 2005, Florida experienced windstorm
catastrophe Wilma which resulted in estimated losses of approximately
$38,000,000 prior to reinsurance and $1,350,000 net of reinsurance. The expenses
for Hurricane Wilma will be reflected in the fourth quarter. 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 and the Company's catastrophe management strategies will reduce
the severity of future losses, UPCIC and the Company continue to be exposed to
catastrophic losses.
General and administrative expenses increased 12.7% to $5,251,968 for the
nine-month period ended September 30, 2005 from $4,660,376 for the nine-month
period ended September 30, 2004. General and administrative expenses increased
primarily due to further development of the Company's insurance operations.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2005 VERSUS THREE
MONTHS ENDED SEPTEMBER 30, 2004
Gross premiums written increased 108.2% to $26,507,558 for the three-month
period ended September 30, 2005 from $12,733,064 for the three-month period
ended September 30, 2004. The increase in gross premiums written is primarily
attributable to an approximate 100.4% increase in new business as well as an
overall 7.8 % premium rate increase. The increase in new business is partially
attributable to the recent windstorm catastrophes providing an opportunity in
the otherwise competitive marketplace as certain companies are not accepting new
business.
Net premiums earned increased 386.2% to $5,878,040 for the three-month
period ended September 30, 2005 from $1,208,937 for the three-month period ended
September 30, 2004. The increase is due to an increase in new business, premium
rate increases and changes in the reinsurance program effective June 1, 2005.
Investment income increased $328,449 for the three-month period ended
September 30, 2005 from $(27,704) for the three-month period ended September 30,
2004. The increase is primarily due to higher investment balances that resulted
19
from advances from reinsurers and a higher interest rate environment during the
three months ended September 30, 2005.
Transaction fee revenue decreased 66.9% to $112,720 for the three-month
period ended September 30, 2005 from $340,630 for the three-month period ended
September 30, 2004. The decrease is primarily due to decreased sales of on-line
insurance leads to insurance agents.
Other revenue increased 2,317.1% to $165,187 for the three-month period
ended September 30, 2005 from $6,834 for the three-month period ended September
30, 2004. The increase is primarily attributable to more activity in the direct
sales and service operations during the three months ended September 30, 2005.
Commission income increased 41.7% to $703,435 for the three-month period
ended September 30, 2005 from $496,532 for the three-month period ended
September 30, 2004. Commission income is comprised principally of the managing
general agent's policy fee income on all new and renewal insurance policies and
commissions generated from agency operations. The increase is primarily
attributable to an increase in commissions generated from agency operations on
new policies.
Net losses and loss adjustment expense ("LAE") incurred increased 87.2%
to $3,244,879 for the three-month period ended September 30, 2005 from
$1,733,470 for the three-month period ended September 30, 2004. Losses and LAE
incurred increased due to increased exposure due to increased premium volume and
changes in the Company's reinsurance program effective June 1, 2005. The
Company's net loss ratio for the three-month period ended September 30, 2005 was
55.2% compared to 143.4% for the three-month period ended September 30, 2004.
Losses and LAE are influenced by loss severity and frequency. The Company's net
loss ratio decreased principally due to the lower frequency and severity of
claims in the three months ended September 30, 2005. Losses and LAE, the
Company's most significant expenses, represent actual payments made net of
reinsurance and changes in estimated future net payments to be made to or on
behalf of its policyholders, including expenses required to settle claims and
losses.
Catastrophes are an inherent risk of the property-liability insurance
business which may contribute to material year-to-year fluctuations in UPCIC's
and the Company's results of operations and financial position. During the third
quarter of 2004, Florida experienced four windstorm catastrophes (Hurricanes
Charley, Frances, Ivan and Jeanne) which resulted in losses. As a result of
these storms, the Company estimated for the year ended December 31, 2004 it
incurred approximately $148,500,000 in losses prior to reinsurance and
$1,600,000 net of reinsurance. UPCIC currently reports approximately 200 open
claims out of nearly 11,000 reported from the four hurricanes. During the third
quarter of 2005, Florida experienced two windstorm catastrophes (Hurricanes
Dennis and Katrina) which resulted in losses. As a result of these storms, the
Company estimates it incurred approximately $4,800,000 in losses prior to
reinsurance and $1,800,000 net of reinsurance for the three months ended
September 30, 2005. On October 24, 2005, Florida experienced windstorm
catastrophe Wilma which resulted in estimated losses of approximately
$38,000,000 prior to reinsurance and $1,350,000 net of reinsurance. The expenses
for Hurricane Wilma will be reflected in the fourth quarter. The level of
catastrophe loss experienced in any year cannot be predicted and could be
20
material to the results of operations and financial position. While management
believes UPCIC's and the Company's catastrophe management strategies will reduce
the severity of future losses, UPCIC and the Company continue to be exposed to
catastrophic losses.
General and administrative expenses increased 19.3% to $1,026,093 for the
three-month period ended September 30, 2005 from $860,057 for the three-month
period ended September 30, 2004. General and administrative expenses increased
primarily due to further development of the Company's insurance operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash flow are premium revenues,
commissions, policy fees, investment income and reinsurance recoverables and
short-term loans.
For the nine-month period ended September 30, 2005, cash flows provided by
operating activities were $16,175,225. This amount includes $2,115,199 in cash
received from reinsurers in advance of catastrophe claim payments to
policyholders. Cash flows from operating activities are 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 cash and readily marketable securities.
In July 2004, the Company borrowed monies from three private investors in
the amounts of $175,000, $150,000 and $100,000 for working capital. The terms of
the notes evidencing such loans require interest payments at a rate of 10%
through January 2005 with equal monthly payments of principal plus interest
thereafter until January 2006, the maturity date of the notes. In conjunction
with the loans, the Company issued to the private investors warrants to purchase
175,000, 150,000 and 100,000 shares of restricted Common Stock each at an
exercise price of $.05 per share, and each expiring in July 2009. In June 2005,
the Company borrowed monies from two private investors and issued two promissory
notes for the aggregate principal sum of $1,000,000 payable in five monthly
installments of $200,000 commencing September 30, 2006. The loan amount
subsequently was contributed to UPCIC as additional paid-in-capital. In
conjunction with the notes, the Company issued warrants to one of the investors
to purchase 200,000 shares of restricted Common Stock at an exercise price of
$.05 per share, expiring in June 2010.
In order to improve the Company's financial position and achieve
profitable operations, management has implemented rate increases for new and
renewal business, has restructured the homeowners' coverage offered, has
restructured its catastrophic reinsurance coverage to reduce cost, and has
worked to control future general and administrative expenses. In addition,
management is exploring sources of additional capital.
Management believes that the continued implementation of these plans will
be successful over the next twelve months. However, there can be no assurance
that successful implementation of these plans will be achieved or will be
sufficient to ensure UPCIC's future compliance with Florida insurance
regulations, or that the Company will be able to maintain profitability. Failure
21
by UPCIC to maintain the required level of statutory capital and surplus could
result in the suspension of UPCIC's authority to write new or renewal business,
other regulatory actions or ultimately, in the revocation of UPCIC's certificate
of authority by the Florida Office of Insurance Regulation ("OIR").
The Company believes that its current capital resources together with
management's plan as described above will be sufficient to support current
operations and expected growth for at least 12 months.
The property and casualty reinsurance industry is subject to the same
market conditions as the direct property and casualty insurance market, and
there can be no assurance that reinsurance will be available to UPCIC to the
same extent and at the same cost as currently in place for UPCIC. Future
increases in catastrophe reinsurance costs are possible and could adversely
effect UPCIC's results.
The balance of cash and cash equivalents at September 30, 2005 is
$37,329,866. Most of this amount is available to pay claims in the event of
catastrophic events pending reimbursement for any aggregate amount in excess of
$1,350,000 per event up to approximately the 100 year probable maximum loss
which would be covered by reinsurers. Catastrophic reinsurance is recoverable
upon presentation to the reinsurer of evidence of claim payment.
Generally accepted accounting principles differ in some respects from
reporting practices prescribed or permitted by the OIR. To retain its
certificate of authority, the Florida insurance laws and regulations require
that UPCIC maintain capital and surplus equal to the statutory minimum capital
and surplus requirement defined in the Florida Insurance Code. UPCIC's statutory
capital and surplus exceeded the minimum capital and surplus requirements of
$4,000,000 as of September 30, 2005. UPCIC is also required to adhere to
prescribed premium-to-capital surplus ratios.
The maximum amount of dividends which can be paid by Florida insurance
companies without prior approval of the OIR Commissioner is subject to
restrictions relating to statutory surplus. The maximum dividend that may be
paid by UPCIC 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 surplus as of the preceding year end. Statutory unassigned surplus
(deficit) at December 31, 2004 was $(4,787,758).
The Company is required to comply with the National Association of
Insurance Commissioner's ("NAIC") Risk-Based Capital ("RBC") requirements. RBC
requirements prescribe 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 requirements are used by regulators to
determine appropriate regulatory actions relating to insurers who show signs of
weak or deteriorating condition. As of December 31, 2004, based on calculations
using the appropriate NAIC RBC formula, the Company's reported total adjusted
capital was in excess of the requirements.
OFF-BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements during the first nine months
of 2005.
22
ITEM 3. CONTROLS AND PROCEDURES
- ------- -----------------------
The Company carried out an evaluation under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the
period covered by this report. Based on that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer have concluded that disclosure
controls and procedures were effective as of the end of the period covered by
this report to ensure that information required to be disclosed by the Company
in its reports that it files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms. There was
no change in the Company's internal controls over financial reporting that
occurred during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
23
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
On February 7, 2005, Marty Steinberg as a court appointed receiver for the
entities consisting of Lancer Management Group LLC, Lancer Management Group II
LLC, Lancer Offshore Inc., Omnifund Ltd., LSPV Inc., LSPV LLC, Alpha Omega Group
Inc. and G.H. Associates LLC (collectively the "Lancer Entities") filed suit
against Alfred Taubman, Anthony Cullen, British American Racing, Centrack
International, Inc., Kuwait & Middle East Financial Investment Co., Liberty
International Asset Management, Macroview Investments Limited, Opus Portfolio
Ltd., Reva Stocker, Roger Dodger, LLC, Signet Management Limited, Thornhill
Group Inc. Trust, World Class Boxing and the Company (collectively the
"Defendants") in the United States District Court for the Southern District of
Florida. The Company received the notice of suit by mail on September 8, 2005.
The suit alleges that the Lancer Entities fraudulently transferred funds to the
Defendants and that the transfers unduly enriched the Defendants. The receiver
is asking the Company to pay $658,107.86. The Company has no record of the
alleged transfers and intends to vigorously defend the suit.
The Company did not have any other reportable legal proceedings during the
nine months ending September 30, 2005. Certain claims and complaints have been
filed or are pending against the Company with respect to various matters. In the
opinion of management, none of these lawsuits is material, and they are
adequately provided 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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
- ------ -----------------------------------------------------------
Under an amendment to the employment agreement between the Company and
Bradley I. Meier dated June 27, 2002, and approved by the Board of Directors,
Mr. Meier elected to convert salary into 860,000 shares of restricted Common
Stock. The shares of restricted Common Stock were issued to Mr. Meier in May
2005 in a private transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended. Also in May 2005, the Company issued 600,000 shares of
restricted Common Stock to Sean P. Downes, COO of UPCIC, pursuant to Mr. Downes
election to receive such shares in lieu of salary. The shares were issued to Mr.
Downes in a private transaction pursuant to Section 4(2) of the Securities Act
of 1933, as amended.
In July 2004, the Company borrowed monies from three private investors in
the amounts of $175,000, $150,000 and $100,000 for working capital. The terms of
the notes evidencing such loans require interest payments at a rate of 10%
through January 2005 with equal monthly payments of principal plus interest
thereafter until January 2006, the maturity date of the notes. In conjunction
with the loans, the Company issued to the private investors warrants to purchase
175,000, 150,000 and 100,000 shares of restricted Common Stock each at an
exercise price of $.05 per share, and each expiring in July 2009. In June 2005,
the Company borrowed monies from two private investors and issued two promissory
notes for the aggregate principal sum of $1,000,000 payable in five monthly
installments of $200,000 commencing September 30, 2006. The loan amount
subsequently was contributed to UPCIC as additional paid-in-capital. In
24
conjunction with the notes, the Company issued warrants to one of the investors
to purchase 200,000 shares of restricted Common Stock at an exercise price of
$.05 per share, expiring in June 2010.
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
- ------- --------
EXHIBIT NO. EXHIBIT
----------- -------
11.1 Statement Regarding Computation of Per Share Income
31.1 Certification of Chief Executive Officer Pursuant to
Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to
Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to Title 18, United States
Code, Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
25
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNIVERSAL INSURANCE HOLDINGS, INC.
Date: November 14, 2005 /s/ Bradley I. Meier
-----------------------------------------
Bradley I. Meier, Chief Executive Officer
/s/ James M. Lynch
-----------------------------------------
James M. Lynch, Chief Financial Officer
26