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, 2004
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 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.)
2875 N.E. 191st Street
Suite 300
Miami, Florida 33180
(Address of principal executive offices)
(305) 792-4200
(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date: 34,408,775 shares of common
stock as of September 30, 2004.
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 only of normal
recurring accruals) necessary for a fair presentation of the financial
information for the interim periods reported have been made. Results of
operations for the nine months ended September 30, 2004 are not necessarily
indicative of the results for the year ending December 31, 2004.
2
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2004
(Unaudited)
ASSETS
Cash and cash equivalents $ 35,132,339
Prepaid reinsurance premiums and reinsurance recoverables 97,632,851
Premiums and other receivables (net of allowance for doubtful
accounts of $172,500) 1,016,368
Investments in real estate 1,668,429
Property, plant and equipment, net 933,492
Other assets 127,919
-------------
Total assets $ 136,511,398
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses $ 78,087,732
Unearned premiums 20,928,942
Accounts payable 1,279,772
Reinsurance payable 29,433,713
Other accrued expenses 2,622,152
Loans payable 958,492
-------------
Total liabilities 133,310,803
-------------
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,
34,408,775 shares issued and 31,300,130 shares outstanding 265,493
Common stock in treasury, at cost - 208,645 shares (101,820)
Additional paid-in capital 15,114,406
Accumulated deficit (12,078,871)
--------------
Total stockholders' equity 3,200,595
--------------
Total liabilities and stockholders' equity $ 136,511,398
==============
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,
2004 2003 2004 2003
---- ---- ---- ----
PREMIUMS EARNED AND OTHER REVENUES:
Premium income, net $ 3,331,995 $ 1,996,494 $ 1,208,937 $ 779,078
Net investment income 12,115 55,279 (27,704) 13,827
Commission revenue 1,245,147 1,129,392 496,532 446,335
Transaction fees 1,528,861 932,873 340,630 382,630
Other revenue 414,575 785,593 6,834 163,729
------------ ------------ ------------ ----------
Total revenues 6,532,693 4,899,631 2,025,229 1,785,599
------------ ------------ ------------ ----------
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses 2,273,934 766,459 1,733,470 96,130
General and administrative expenses 4,660,376 4,090,493 860,057 1,770,831
------------ ------------ ------------ ----------
Total operating costs and expenses 6,934,310 4,856,952 2,593,527 1,866,961
------------ ------------ ------------ ----------
NET (LOSS) INCOME $ (401,617) $ 42,679 $ (568,298) $ (81,362)
------------ ------------ ------------ ----------
(LOSS) INCOME PER COMMON SHARE: $ (0.01) $ 0.00 $ (0.02) $ (0.00)
Basic ------------ ------------ ------------ ----------
WEIGHTED AVERAGE COMMON SHARES 30,214,000 23,771,000 31,300,000 24,966,000
OUTSTANDING - BASIC ------------ ------------ ------------ ----------
(LOSS) INCOME PER COMMON SHARE $ (0.01) $ 0.00 $ (0.02) $ (0.00)
Diluted ------------ ------------ ------------ ----------
WEIGHTED AVERAGE COMMON SHARES 30,921,000 24,361,000 31,990,000 25,534,000
------------ ------------ ------------ ----------
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
OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------
NET (LOSS) INCOME $ (401,617) $ 42,679 $ (568,298) $ (81,362)
OTHER COMPREHENSIVE INCOME:
Change in net unrealized gain on
available-for-sale securities 26,657 34,560 - 23,721
---------- ---------- ------------- ----------
COMPREHENSIVE (LOSS) INCOME $ (374,960) $ 77,239 $ (568,298) $ (57,641)
===============================================================================================================
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, 2004 September 30, 2003
---------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (401,617) $ 42,679
Adjustments to reconcile net (loss) income
to cash provided by operations:
Amortization and depreciation 305,453 205,144
Issuance of common stock as compensation 140,749 36,666
Loss on dispoal of assets (19,280) 14,112
Net change in assets and liabilities relating to operating activities:
Prepaid reinsurance premiums and reinsurance recoverables (72,795,312) (2,627,389)
Premiums and other receivables (127,919) 307,422
Reinsurance payables 24,297,879 1,860,568
Accounts payable 103,118 201,876
Other accrued expenses 1,800,134 (74,241)
Unpaid losses and loss adjustment expenses 70,406,860 56,209
Unearned premiums 4,823,366 (2,709,825)
Other assets (479,782) -
-------------------- ------------------
Net cash provided by (used in) operating activities 28,053,649 (2,686,779)
-------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures 221,080 (64,369)
Proceeds from maturities of debt securities held to maturity 100,000 235,133
Proceeds from sale of equity securities available for sale 194,976 113,414
Purchase of real estate (1,668,429) -
Sale of real estate 140,022 106,228
-------------------- ------------------
Net cash (used in) provided by investing activities (1,012,351) 390,406
-------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividend (37,460) (37,460)
Repayments of loans payable (507,777) (566,018)
Proceeds from loans payable 625,000 250,000
-------------------- ------------------
Net cash provided by (used in) financing activities 79,763 (353,478)
-------------------- ------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 27,121,061 (2,649,851)
CASH AND CASH EQUIVALENTS, Beginning of period 8,011,278 4,587,920
-------------------- ------------------
CASH AND CASH EQUIVALENTS, End of period $ 35,132,339 $ 1,938,069
-------------------- ------------------
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, 2004
(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,
2004, the related condensed consolidated statements of operations and
comprehensive operations for the three and nine months ended September 30, 2004
and 2003 and cash flows for the nine months ended September 30, 2004 and 2003
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, 2003. The interim financial statements reflect all
adjustments (consisting of only normal and recurring accruals and adjustments)
which are, in the opinion of management, necessary for a fair statement of the
results for the interim periods presented. The Company's operating results for
any particular interim period may not be indicative of results for the full year
and thus should be read in conjunction with the Company's annual statements.
The preparation of financial statements in conformity with 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 2004.
NEW ACCOUNTING PRONOUNCEMENTS. In December 2002, the Financial Accounting
Standards Board ("FASB") issued 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.
7
In February 2004, the FASB's Emerging Issues Task Force reached a consensus
regarding certain disclosure requirements in EITF Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments
("EITF No. 03-1"). EITF No. 03-1 describes certain quantitative and qualitative
disclosures that are required for marketable equity securities covered by
Statement No. 115, including the aggregate amount of unrealized losses and the
aggregate related fair value of investments with unrealized losses, by
investment type, as well as the nature of the investment(s), cause of
impairment, number of positions held, severity and duration of the impairment.
The disclosures required by EITF No. 03-1 are effective for fiscal years ending
after December 15, 2003. The Emerging Issues Task Force is discussing further
the other issues addressed in EITF No. 03-1, including the meaning of
other-than-temporary impairment and its application to investments accounted for
under the cost method or the equity method, or as either available-for-sale or
held-to-maturity under Statement No. 115. The impact of such adoption is not
anticipated to have a material effect on the Company's consolidated financial
statements.
On December 31, 2003, the FASB issued a revised version of FIN 46 ("FIN 46R"),
which incorporates a number of modifications and changes made to the original
version. FIN 46R replaces the previously issued FIN 46, Consolidation of
Variable Interest Entities, which requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or is entitled to receive
a majority of the entity's residual returns or both. FIN 46R does not have an
impact on the Company's consolidated financial condition or results of
operations. Further, FIN 46R requires the disclosure of certain information
related to variable interest entities in which the Company holds a significant
variable interest. The Company does not own any such interests.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES. Management has reassessed the
critical accounting policies as disclosed in our 2003 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 of 7.5% and 7.8% were implemented in June 2003
and January 2004, respectively. 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 has achieved more
favorable ceding commission terms on its quota share reinsurance program
effective June 1, 2004. UPCIC was also able to obtain a less expensive
catastrophic reinsurance program for 2004 - 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.
The Company believes that this will enhance UPCIC's operating results through
its ability to improve and better control underwriting and loss adjusting
activities.
8
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 achieve 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,
2004, the Company had unearned premiums totaling $20,928,942.
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, 2004, 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, 2004.
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. The Company's loss ratio has
increased from the prior year due to higher 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 estimates it incurred
approximately $81,500,000 in losses prior to reinsurance and $1,600,000 net of
reinsurance.
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
9
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.
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. During the
third quarter of 2004 the Company completed the transition of these operations
from its previous Arizona location to the Company's home office in Florida. In
conjunction with the move, Bradley I. Meier took over Chief Executive Officer
responsibilities. In addition, the Company set up an allowance for doubtful
accounts of $142,000 in the September 30, 2004 financial statements.
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 and landscaping to
homeowners. The services are currently offered to commercial and residential
customers in certain areas in the state of Florida. Various plans are offered to
fit customer needs. During the third quarter of 2004, the Company sold the
landscaping division. The transaction consisted of an asset sale of accounts and
equipment for $23,000 in cash.
NOTE 3 - REINSURANCE
UPCIC's in-force policyholder coverage for windstorm exposures as of September
30, 2004 was approximately $5.6 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 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.
10
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, 2004, UPCIC entered into a quota share reinsurance treaty and
excess per risk agreements with various reinsurers. Under the quota share
treaty, UPCIC cedes 80% 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 $2,000,000. Effective
June 1, 2004, UPCIC entered into a multiple line excess per risk agreement.
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 risk and each
property loss, and $1,000,000 in excess of $300,000 for each casualty loss,
excluding losses arising from the peril of wind to the extent such wind related
losses are the result of a hurricane. A $1,300,000 limit applies to the term of
the contract for property losses and a $1,000,000 limit applies to the term of
the contract for casualty losses. Effective June 1, 2004, 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. The occurence limit is $900,000. A
$2,100,000 limit applies to the term of the contract.
Effective June 1, 2004, under an excess catastrophe contract, UPCIC obtained
catastrophe coverage of $22,200,000 in excess of $2,000,000 covering certain
loss occurrences including hurricanes. The contract contains one reinstatement.
Under separate excess catastrophe contracts, UPCIC obtained catastrophe coverage
of $22,200,000 in excess of $2,000,000 covering third and fourth events and
catastrophe coverage of $15,500,000 in excess of $2,000,000 covering fifth and
sixth events. UPCIC also obtained coverage from the Florida Hurricane
Catastrophe Fund. The coverage is for approximately $60,200,000 in excess of
$17,800,000.
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, 2004 September 30, 2003
------------------ -------------------
Loss Loss
and Loss and Loss
Premiums Premiums Adjustment Premiums Premiums Adjustment
Written Earned Expenses Written Earned Expenses
------- ------ -------- ------- ------ --------
Direct $28,800,237 $23,976,872 $85,666,788 $22,400,227 $25,110,052 $7,555,355
Ceded (24,625,090) (20,644,877) (83,392,854) (20,087,119) (23,113,558) (6,788,896)
------------ ------------- ------------ ------------ ------------ -----------
Net $4,175,147 $3,331,995 $2,273,934 $2,313,108 $1,996,494 $766,459
=========== ========== ========== ========== ========== ========
11
Three Months Ended Three Months Ended
September 30, 2004 September 30, 2003
------------------- ------------------
Loss Loss
and Loss and Loss
Premiums Premiums Adjustment Premiums Premiums Adjustment
Written Earned Expenses Written Earned Expenses
----------- ---------- ------------ ------- ------------ ----------
Direct $12,733,064 $8,684,387 $ 82,609,481 $7,019,765 $8,572,409 $1,415,771
Ceded (12,269,376) (7,475,450) (80,876,011) (6,060,133) (7,793,331) (1,319,641)
------------ ---------- --------------- ----------- ---------- ----------
Net $ 463,688 $1,208,937 $ 1,733,470 $ 959,632 $ 779,078 $ 96,130
============= ========== ============== =========== =========== ============
Other Amounts:
September 30, 2004
------------------
Reinsurance recoverable on paid and unpaid losses
and loss adjustment expenses $ 77,895,444
Unearned premiums ceded 18,162,591
Other reinsurance receivable 1,574,816
-----------
Prepaid reinsurance premiums and reinsurance recoverable $ 97,632,851
==========
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, 2004. 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 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 and three month periods ended September 30, 2004 and September 30,
2003, respectively, follows:
Nine Months Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Basic EPS 30,214,000 23,771,000
12
Effect of assumed conversion of
common stock equivalents 707,000 590,000
---------------- ---------------
Diluted EPS 30,921,000 24,361,000
Options and warrants to purchase approximately 10,288,000 and 11,440,000 shares
of common stock were outstanding during the nine months ended September 30, 2004
and September 30, 2003, 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, 2004 September 30, 2003
------------------ ------------------
Basic EPS 31,300,000 24,966,000
Effect of assumed conversion of
common stock equivalents 690,000 568,000
---------------- ---------------
Diluted EPS 31,990,000 25,534,000
Options and warrants to purchase approximately 10,305,000 and 11,462,000 shares
of common stock were outstanding during the three months ended September 30,
2004 and September 30, 2003, 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, 2004
and September 30, 2003. 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 (loss) and earnings (loss) per share
would have been as indicated in the table below.
13
Nine Months Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Net (loss) income:
As reported $(401,617) $ 42,679
Compensation expense (74,702) (171,104)
Pro forma (476,319) (128,425)
Net (loss) income per share:
Basic
As reported ($0.01) $0.00
Compensation expense (0.01) (0.01)
---------------- ---------------
Pro forma ($0.02) ($0.01)
Diluted
As reported ($0.01) 0.00
Compensation expense (0.01) (0.01)
---------------- ---------------
Pro forma ($0.02) ($0.01)
Three Months Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Net loss:
As reported $(568,298) $(81,362)
Compensation expense (23,717) (26,209)
Pro forma (592,015) (107,571)
Net loss per share:
Basic
As reported ($0.02) $0.00
Compensation expense 0.00 0.00
---------------- ---------------
Pro forma ($0.02) $0.00
Diluted
As reported ($0.02) 0.00
Compensation expense 0.00 0.00
---------------- ---------------
Pro forma ($0.02) $0.00
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,
with the following weighted average assumptions used for grants during the nine
months ended September 30, 2004: expected price volatility of 154%; risk-free
interest rate of 6.5%; no dividends; and expected lives of five years. There
were no option grants in 2003.
14
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 generation 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.
15
Information regarding components of operations for the three months and nine
months ended September 30, 2004 follows:
Total revenue
Insurance segment $8,822,520 $6,293,736
Online commerce segment 1,594,636 1,007,475
Corporate and other 250,879 252,462
------------------- -------------------
Total operating segments 10,668,035 7,553,673
Intercompany eliminations (4,135,342) (2,654,042)
------------------- -------------------
Total revenues $6,532,693 $4,899,631
=================== ===================
Earnings (loss) before income taxes
Insurance segment $801,740 $808,262
Online commerce segment (205,764) 97,787
Corporate and other (997,593) (863,370)
------------------- -------------------
Total (loss) earnings before income taxes ($401,617) $42,679
=================== ===================
Three months ended September 30,
2004 2003
------------------- -------------------
Total revenue
Insurance segment $3,701,522 $2,072,701
Online commerce segment 348,750 399,290
Corporate and other 50,980 105,334
------------------- -------------------
Total operating segments 4,101,252 2,577,325
Intercompany eliminations (2,076,023) (791,726)
------------------- -------------------
Total revenues $2,025,229 $1,785,599
=================== ===================
(Loss) earnings before income taxes
Insurance segment ($153,170) $116,764
Online commerce segment (281,968) 53,659
Corporate and other (133,160) (251,785)
------------------- -------------------
Total loss before income taxes ($568,298) ($81,362)
=================== ===================
16
Information regarding total assets as of September 30, 2004 and September 30,
2003:
2004 2003
---------------- -----------------
Total assets
Insurance segment $146,494,871 $39,407,555
Online commerce segment 1,730,903 1,173,184
Corporate and other 23,680,330 22,490,875
---------------- -----------------
Total operating segments $171,906,104 $63,071,614
Intercompany eliminations (35,394,706) (30,584,175)
---------------- -----------------
Total assets $136,511,398 $32,487,439
================ =================
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
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,
17
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,
2004, agencies have been established in 21 states, none 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
landscaping and pool services to homeowners. The services are currently offered
to residential customers in certain areas in the state of Florida. During the
third quarter of 2004, the Company sold the landscaping division.
FINANCIAL CONDITION
Cash and cash equivalents at September 30, 2004 aggregated
$35,132,339. 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. Amounts
considered to be in excess of current working capital requirements have been
invested. In addition, in July 2004, the Company purchased a building for
$1,668,429 that it intends to use as its home office. At September 30, 2004,
UPCIC's investments were comprised of $35,132,339 in cash and repurchase
agreements.
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 44,000 homeowners and dwelling fire insurance policies.
The Company has also diversified its operations by establishing online
commerce and other ancillary operations.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2004 VERSUS NINE MONTHS
ENDED SEPTEMBER 30, 2003
Gross premiums written increased 28.6% to $28,800,237 for the
nine-month period ended September 30, 2004 from $22,400,227 for the nine-month
period ended September 30, 2003. The increase in gross premiums written is
primarily attributable to an approximate 20% increase in new business as well as
an overall 7.8% premium rate increase.
Net premiums earned increased 66.9% to $3,331,995 for the nine-month
period ended September 30, 2004 from $1,996,494 for the nine-month period ended
18
September 30, 2003. The increase is due to an increase in new business, premium
rate increases and changes in the reinsurance program effective June 1, 2004.
Investment income decreased 78.1% to $12,115 for the nine-month period
ended September 30, 2004 from $55,279 the nine-month period ended September 30,
2003. The decrease is primarily due to realized losses on the sale of certain
real estate properties held as investments as well as the lower interest rate
environment during the nine months ended September 30, 2004.
Transaction fee revenue increased 63.9% to $1,528,861 for the
nine-month period ended September 30, 2004 from $932,873 for the nine-month
period ended September 30, 2003. The increase is primarily due to increased
sales of on-line insurance leads to insurance agents.
Other revenue decreased 47.2% to $414,575 for the nine-month period
ended September 30, 2004 from $785,593 for the nine-month period ended September
30, 2003. The decrease is primarily attributable to less activity in the direct
sales and service operations during the nine months ended September 30, 2004. In
July 2004, the Company sold the landscaping division of Tiger Home Services,
Inc.
Commission income increased 10.2% to $1,245,147 for the nine-month
period ended September 30, 2004 from $1,129,392 for the nine-month period ended
September 30, 2003. 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.
Net losses and loss adjustment expense ("LAE") incurred increased
196.7% to $2,273,934 for the nine-month period ended September 30, 2004 from
$766,459 for the nine-month period ended September 30, 2003. Losses and LAE
incurred increased due to higher frequency and severity of claims in 2004 as
well as changes related to the Company's reinsurance program. The Company's
direct loss ratio for the nine-month period ended September 30, 2004 was 357.3%
compared to 30.1% for the nine-month period ended September 30, 2003. Losses and
LAE are influenced by loss severity and frequency. The Company's direct loss
ratio increased principally due to the higher frequency and severity of claims
in the nine months ended September 30, 2004. 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 estimates it incurred approximately $81,500,000 in losses prior to
reinsurance and $1,600,000 net reinsurance. These losses resulted in 339.9% of
the nine month loss ratio. Except for these claims, the Company believes that
the severity and frequency of claims remained relatively stable for the periods
under comparison. 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. 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
19
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 13.9% to $4,660,376 for
the nine-month period ended September 30, 2004 from $4,090,493 for the
nine-month period ended September 30, 2003. General and administrative expenses
have increased mainly due to further development of the Company's insurance
operations.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2004 VERSUS THREE
MONTHS ENDED SEPTEMBER 30, 2003
Gross premiums written increased 81.4% to $12,733,064 for the
three-month period ended September 30, 2004 from $7,019,765 for three-month
period ended September 30, 2003. The increase in gross premiums written is
primarily attributable to an approximate 70% increase in new business as well as
an overall 7.8% premium rate increase.
Net premiums earned increased 55.2% to $1,208,937 for the three-month
period ended September 30, 2004 from $779,078 for the three-month period ended
September 30, 2003. The increase is primarily due to an increase in new
business, premium rate increases and changes in the reinsurance program
effective June 1, 2004.
Investment income decreased to ($27,704) for the three-month period
ended September 30, 2004 from $13,827 for the three-month period ended September
30, 2003. The decrease is primarily due to realized losses on the sale of
certain real estate properties held as investments during the three months ended
September 30, 2004.
Transaction fee revenue decreased 11.0% to $340,630 for the
three-month period ended September 30, 2004 from $382,630 for the three-month
period ended September 30, 2003. The decrease is primarily due to decreased
sales of insurance leads to insurance agents. This was in part due to the
transition of the online commerce operation from the previous Arizona location
to the Company's home office during the quarter.
Other revenue decreased 95.8% to $6,834 for the three-month period
ended September 30, 2004 from $163,729 for the three-month period ended
September 30, 2003. The decrease is primarily attributable to less activity in
the direct sales and service operations during the three months ended September
30, 2004. In July 2004, the Company sold the landscaping division of Tiger Home
Services, Inc.
Commission income increased 11.2% to $496,532 for the three-month
period ended September 30, 2004 from $446,335 for the three-month period ended
September 30, 2003. 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.
Net losses and loss adjustment expense ("LAE") incurred increased
1,703.3% to $1,733,470 for the three-month period ended September 30, 2004 from
$96,130 for the three-month period ended September 30, 2003. Losses and LAE
incurred increased due to higher frequency and severity of claims in 2004 as
20
well as changes related to the Company's reinsurance program. The Company's
direct loss ratio for the three-month period ended September 30, 2004 was 951.2%
compared to 16.5% for the three-month period ended September 30, 2003. Losses
and LAE are influenced by loss severity and frequency. The Company's direct loss
ratio increased principally due to the higher frequency and severity of claims
in the three months ended September 30, 2004. 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 estimates it incurred approximately $81,500,000 in losses prior to
reinsurance and $1,600,000 net reinsurance. These losses resulted in 938.5% of
the three month loss ratio. Except for these claims, the Company believes that
the severity and frequency of claims remained relatively stable for the periods
under comparison. 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. 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 decreased 51.4% to $860,057 for
the three-month period ended September 30, 2004 from $1,770,831 for the
three-month period ended September 30, 2003. General and administrative expenses
have decreased mainly due to higher ceding commissions received on premiums
ceded to reinsurers during 2004.
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, 2004, cash flows
provided by operating activities were $28,053,649. This amount includes
$25,244,399 in cash received from reinsurers in advance of catastrophe claim
payments to policyholders resulting from Hurricanes Charley, Frances, Ivan and
Jeanne that hit Florida in the third quarter of 2004. 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. These
transactions were approved by the Company's Board of Directors.
21
In September 2004, the Company borrowed $50,000 from each of Bradley
I. Meier, President and Chief Executive Officer of the Company, and Sean P.
Downes, Chief Operating Officer of UPCIC. The monies were used to make an
additional capital contribution to UPCIC to ensure that UPCIC meets regulatory
surplus requirements and to allow for continued development of UPCIC's business
and the principal amount of these loans was repaid in October 2004. Interest in
the amount of $5,000 remains outstanding on each such loan. In conjunction with
these loans the Company anticipates issuing 50,000 shares of restricted Common
Stock to each of Mr. Meier and Mr. Downes. Also in September 2004, the Company
borrowed $100,000 from a private investor, which loan, plus interest of $10,000,
was repaid in October 2004. The funds were used to make an additional capital
contribution to UPCIC to ensure that UPCIC meets regulatory surplus requirements
and to allow for continued development of UPCIC's business. In conjunction with
this loan the Company anticipates issuing 100,000 shares of restricted Common
Stock to the private investor. These transactions were approved by the Company's
Board of Directors.
Also in September 2004, the Company's reinsurance intermediary
advanced the Company $250,000 which was used as an additional capital
contribution to UPCIC.
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
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 balance of cash and cash equivalents at September 30, 2004 is
$35,132,339. Most of this amount, including the $25,244,399 cash received from
reinsurers in advance of catastrophe claim payments to policyholders, is
available to pay claims in the event of catastrophic events pending
reimbursement for any aggregate amount in excess of $400,000 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, 2004. UPCIC is also required to adhere to
prescribed premium-to-capital surplus ratios.
22
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, 2003 was $(3,194,264).
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, 2003, 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 2004.
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
------ ------------------
On July 2, 2004, the Company and its subsidiary Tigerquote.com
Insurance and Financial Services Group, Inc. settled a dispute with former
employee Patric Allan. The subsidiary filed suit against Mr. Allan on June 12,
2004, in the United States District Court for the Southern District of Florida.
The suit alleged that Mr. Allan breached his employment agreement with the
subsidiary by failing to perform his duties for an extended period and by
establishing a competing business while employed by the subsidiary. The former
employee filed a separate action in the Superior Court in and for Maricopa
23
County, Arizona, alleging that the subsidiary and the Company breached the
employment agreement and caused emotional distress to the former employee. Both
actions were dismissed pursuant to the settlement agreement entered into as of
July 2, 2004. Among its provisions, the settlement agreement specified that the
Company and the subsidiary transfer ownership of an Arizona-based insurance
agency affiliate to Mr. Allan.
The Company did not have any other reportable legal proceedings during
the nine months ending September 30, 2004. 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
------ -----------------------------------------------------------
At a meeting of the Company's Board of Director's on March 4, 2004,
certain employee and director compensation actions were approved. Pursuant to
Section 4(2) of the Securities Act of 1933, as amended, Patric Allan, former CEO
of Tigerquote.com, was granted 100,000 shares of restricted common stock,
options to purchase 500,000 shares of restricted common stock with an exercise
price of $0.025 per share, and additional options to purchase 500,000 shares of
restricted common stock with an exercise price of $0.025 per share that were
exercisable upon profit goals attained. All stock and options were to be issued
upon signing of a new employment agreement. The agreement was finalized in April
2004. The shares were issued in May and are reflected in the financial
statements. The Company was to deliver an option agreement in July 2004.
However, pursuant to the settlement agreement referenced at Part II, Item I
above, Mr. Allan forfeited all ownership rights in the 100,000 shares issued to
him and to all options granted or to be granted to him.
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. These
transactions were approved by the Company's Board of Directors.
In September 2004, the Company borrowed $50,000 from each of Bradley
I. Meier, President and Chief Executive Officer of the Company, and Sean P.
Downes, Chief Operating Officer of UPCIC. The monies were used to make an
additional capital contribution to UPCIC to ensure that UPCIC meets regulatory
surplus requirements and to allow for continued development of UPCIC's business
and the principal amount of these loans was repaid in October 2004. Interest in
the amount of $5,000 remains outstanding on each such loan. In conjunction with
these loans the Company anticipates issuing 50,000 shares of restricted Common
Stock to each of Mr. Meier and Mr. Downes. Also in September 2004, the Company
borrowed $100,000 from a private investor, which loan, plus interest of $10,000,
was repaid in October 2004. The funds were used to make an additional capital
contribution to UPCIC to ensure that UPCIC meets regulatory surplus requirements
and to allow for continued development of UPCIC's business. In conjunction with
this loan the Company anticipates issuing 100,000 shares of restricted Common
Stock to the private investor. These transactions were approved by the Company's
Board of Directors.
24
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 12, 2004 /s/ Bradley I. Meier
----------------------------------------------
Bradley I. Meier, Chief Executive Officer
/s/ James M. Lynch
----------------------------------------------
James M. Lynch, Chief Financial Officer
26