FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 0-27462
RISCORP, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0335150
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Sarasota Tower, Suite 608
2 North Tamiami Trail
Sarasota, Florida 34236
(Address of principal executive offices) (Zip Code)
(941) 366-5015
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at April 30, 1999
Class A Common Stock, $.01 par value 14,258,671
Class B Common Stock, $.01 par value 24,334,443
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INDEX
Page No.
Part I Financial Information
Item 1. Financial Statements
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Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998 3 - 4
Consolidated Statements of Operations -
For the three months ended March 31, 1999 and 1998 5
Consolidated Statements of Cash Flows -
For the three months ended March 31, 1999 and 1998 6
Consolidated Statements of Comprehensive Income 7
Notes to Consolidated Financial Statements 8 - 13
Item 2. Management's Discussion and Analysis of Financial 14 - 19
Condition and Results of Operations
Part II Other Information
Item 1. Legal Proceedings 19 - 21
Item 2. Changes to Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
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Part I Financial Information
Item 1. Financial Statements
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RISCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
March 31, 1999 December 31, 1998
(Unaudited)
Assets
Investments:
<S> <C> <C>
Fixed maturities available for sale, at fair value
(amortized cost $65,723 in 1999 and $6,666 in 1998) $ 65,758 $ 6,716
Fixed maturities available for sale, at fair value (amortized cost $9,044 in
1999 and $9,047 in 1998)-restricted 9,226 9,264
----- -----
Total investments 74,984 15,980
Cash and cash equivalents 9,679 6,864
Cash and cash equivalents-restricted 17,073 14,842
Receivable from Zenith 582 49,933
Accounts receivable--other 6,932 7,674
Prepaid expenses 5,005 5,171
Income taxes recoverable 5,331 17,277
Deferred income taxes 3,158 3,141
Property and equipment, net 297 337
Other assets 245 2,174
----- -----
Total assets $ 123,286 $ 123,393
============= =============
See accompanying notes to consolidated financial statements.
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RISCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
March 31, 1999 December 31, 1998
(Unaudited)
Liabilities and Shareholders' Equity
Liabilities:
<S> <C> <C>
Accrued expenses and other liabilities $ 28,591 $ 27,827
-------------- --------------
Total liabilities 28,591 27,827
Shareholders' equity:
Class A Common Stock, $.01 par value, 100,000,000
shares authorized; 14,258,671 shares issued 143 143
Class B Common Stock, $.01 par value, 100,000,000
shares authorized; 24,334,443 shares issued and outstanding 243 243
Preferred stock, $.01 par value, 10,000,000 shares
authorized; none issued and outstanding
Additional paid-in capital 140,688 140,688
Retained earnings (deficit) (46,519) (45,680)
Treasury Class A Common Stock - at cost, 112,582 shares (1) (1)
Accumulated Other Comprehensive Income:
Net unrealized gains on investments 141 173
--- ---
Total shareholders' equity 94,695 95,566
-------------- --------------
Total liabilities and shareholders' equity $ 123,286 $ 123,393
============= ==============
See accompanying notes to consolidated financial statements.
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RISCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except share and per share data)
Three Months
Ended March 31,
-----------------------------------
1999 1998
--------------- ---------------
(Unaudited) (Unaudited)
Revenue:
<S> <C> <C>
Premiums earned $ -- $ 25,819
Fee income -- 5,723
Net realized gains -- 1,461
Net investment income 1,799 3,306
----- -----
Total revenue 1,799 36,309
----- ------
Expenses:
Losses and loss adjustment expenses -- 24,016
Unallocated loss adjustment expenses -- 2,561
Commissions, underwriting, and administrative expenses 1,157 15,515
Interest expense 1,441 469
Depreciation and amortization 40 3,069
-- -----
Total expenses 2,638 45,630
----- ------
Loss before income taxes (839) (9,321)
Income tax expense (benefit) -- --
----- -----
Net loss $ (839) $(9,321)
======= ========
Per share data:
Net loss per common share - basic $(0.02) $(0.25)
====== ======
Net loss per common share - diluted $(0.02) $(0.25)
====== ======
Weighted average common shares outstanding 37,347,281 36,868,114
=========== ===========
Weighted average common and common share
equivalents outstanding 37,347,281 36,868,114
=========== ===========
See accompanying notes to consolidated financial statements.
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RISCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Three Months
Ended March 31,
-----------------------------------
1999 1998
--------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net cash provided by (used in) operating activities $ 13,533 $ (20,882)
---------- ----------
Cash flows from investing activities:
Purchase of fixed maturities available for sale (192,877) (14,684)
Purchase of fixed maturities held to maturity -- (2,903)
Proceeds from sale of fixed maturities available for sale 133,819 31,623
Proceeds from maturities of fixed maturities available for sale -- 5,369
Proceeds from maturities of fixed maturities held to maturity -- 3,250
Cash received from Zenith for sale of net assets 50,572 --
Purchase of property and equipment -- (693)
---------- ----------
Net cash (used in) provided by investing activities (8,486) 21,962
---------- ----------
Cash flows from financing activities:
Principal repayments of notes payable -- (82)
Decrease in deposit balances payable -- (1,598)
Transfer of cash and cash equivalents to restricted (2,232) (1,090)
---------- ----------
Net cash used in financing activities (2,232) (2,770)
---------- ----------
Net increase (decrease) in cash and cash equivalents 2,815 (1,690)
Cash and cash equivalents, beginning of period 6,864 16,858
---------- ----------
Cash and cash equivalents, end of period $ 9,679 $ 15,168
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3 $ 460
=========== ===========
Income taxes $ 82 $ 1,585
=========== ===========
See accompanying notes to consolidated financial statements
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RISCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(in thousands)
Three Months Ended March 31
--------------------------------------
1999 1998
------------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net loss $ ( 839) $ (9,321)
------------ ----------
Other comprehensive loss, before income taxes:
Unrealized losses on securities available for sale:
Unrealized holding losses arising during year (49) (68)
Income tax benefit related to items of other
comprehensive loss (17) (24)
-------------- -------------
Other comprehensive loss, net of income taxes (32) (44)
-------------- -------------
Total comprehensive loss $ (871) $ (9,365)
============= ==========
See accompanying notes to consolidated financial statements.
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RISCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying consolidated unaudited interim financial statements of
RISCORP, Inc. ("RISCORP") and subsidiaries (collectively, the "Company")
have been prepared on the basis of generally accepted accounting
principles ("GAAP") and, in the opinion of management, reflect all
adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the Company's financial condition, results of
operations, and cash flows for the periods presented. The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The consolidated financial statements include the accounts of RISCORP and
its subsidiaries. All significant intercompany balances have been
eliminated.
(2) Sale to Zenith Insurance Company
As previously disclosed, on April 1, 1998 RISCORP and certain of its
subsidiaries sold substantially all of their assets and transferred
certain liabilities to Zenith Insurance Company ("Zenith") pursuant to
the terms of that certain Asset Purchase Agreement among the parties
dated June 17, 1997, as amended (the "Asset Purchase Agreement"). In
connection with the sale to Zenith, the Company ceased substantially all
of its former business operations, including its insurance operations,
effective April 1, 1998. Accordingly, after such date, the Company's
operations consisted principally of the administration of the day-to-day
activities of the surviving corporate entities, compliance with the
provisions of the Asset Purchase Agreement, and the investment,
protection, and maximization of the remaining assets of the Company. At
the present time, RISCORP has no plans to resume any operating
activities.
In connection with the determination of the final purchase price to be
paid by Zenith, on July 10, 1998 RISCORP and Zenith engaged a nationally
recognized independent accounting firm to serve as neutral auditors and
neutral actuaries (the "Independent Expert") to resolve various items in
dispute between the parties and to determine the Final Business Balance
Sheet, as that term is defined in the Asset Purchase Agreement. On March
19, 1999, the Independent Expert delivered its determination of the Final
Business Balance Sheet and, as such, its conclusion that the book value
of the transferred assets exceeded the book value of the transferred
liabilities assumed by Zenith at closing by $92.3 million. Therefore,
pursuant to the terms of the Asset Purchase Agreement and given the $35
million previously paid by Zenith at closing, Zenith was required to pay
an additional $57.3 million in immediately available funds on or before
March 26, 1999, plus interest thereon of 6.25 percent from April 1, 1998
through the final payment date. On March 26, 1999, Zenith paid RISCORP
$50.8 million (including $3.1 million in interest), deposited $2.8
million into escrow to secure the Company's indemnification obligations
to Zenith, and RISCORP retained, with Zenith's approval, $6.8 million of
cash, certificates of deposit and securities that were identified as a
transferred asset, but had not been physically transferred to Zenith by
such date. RISCORP reported the results of the Independent Expert's
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determinations in the accompanying 1998 consolidated balance sheet. On
April 16, 1999, RISCORP received an additional payment of $0.6 million,
including interest, from Zenith relating to an asset transferred to
Zenith that Zenith had not previously recognized as transferred. This
payment has not been included in the accompanying consolidated financial
statements.
While the Asset Purchase Agreement provides that the decision of the
Independent Expert is final, binding and conclusive, RISCORP believes
that the Independent Expert may have understated the amount by which the
book value of the transferred assets exceeded the book value of the
transferred liabilities by approximately $6 million in its determination
of the Final Business Balance Sheet. The $6 million relates to the impact
on the final determination of premiums ceded under certain reinsurance
agreements for the years 1991, 1992 and 1993 that contained provisions to
calculate the final premiums based on losses incurred under the
reinsurance agreements. RISCORP is reviewing this matter with Zenith and,
pending final resolution of these issues, has not included the impact of
this potential adjustment in the accompanying 1999 or 1998 consolidated
financial statements.
In accordance with the terms of the Asset Purchase Agreement, 15 percent
of the total purchase price is required to be held in escrow for a period
of two years from the Closing Date. The escrowed funds are to be used to
indemnify Zenith against any liabilities or obligations (other than those
transferred) arising out of or related to any misrepresentation, breach,
or nonfulfillment of any covenant or agreement by the Company. The
escrowed funds are to be invested in United States government debt
obligations or in money market funds secured by such debt obligations,
with such funds to be disbursed pursuant to the terms of the Escrow
Agreement. Interest income on the escrowed funds is paid to RISCORP at
the end of each calendar quarter.
As more fully disclosed in Note 5, both RISCORP and Zenith have filed
separate causes of action in Florida and New York, alleging various
breaches of the terms of the Asset Purchase Agreement. Given the inherent
uncertainties associated with the litigation process, management is
unable to predict the ultimate outcome of these lawsuits.
In connection with the sale of RISCORP's insurance operations to Zenith
on April 1, 1998, RISCORP voluntarily consented to the Florida Insurance
Department's request that RISCORP discontinue writing any new or renewal
insurance business for an indefinite period of time.
(3) Sale of Joint Venture
Joint Venture Arrangement
In January 1996, RISCORP, through one of its wholly-owned subsidiary,
RISCORP of Illinois, entered into a joint venture arrangement with Health
Care Service Corporation ("HCSC"), a subsidiary of Blue Cross and Blue
Shield of Illinois, to underwrite and sell managed care workers'
compensation insurance in Illinois. RISCORP and HCSC each held 50 percent
ownership in the joint venture known as Third Coast Holding Company
("Third Coast"). RISCORP contributed the use of its expertise, insurance
systems, and intellectual property, while HCSC contributed cash of $10
million. RISCORP's contributed property in Third Coast was valued at $10
million; however, the Company's cost basis in the contributed property
was $0 and as of December 31, 1996, the Company recorded its initial
investment in Third Coast at $0.
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Initially, RISCORP accounted for its 50 percent investment in Third Coast
on the equity basis of accounting, whereby RISCORP's recorded investment
was adjusted for its proportionate share of earnings or losses of Third
Coast. RISCORP discontinued the use of the equity method of accounting
for Third Coast in the first quarter of 1997 when the cumulative losses
reduced RISCORP's investment in Third Coast to $0. RISCORP has not made
any financial guarantees relating to Third Coast and has not made any
financial commitments to provide any future funding to Third Coast.
Effective January 1, 1998, RISCORP entered into an agreement with HCSC to
sell RISCORP's 50 percent interest in Third Coast for $1.3 million. The
$1.3 million gain on the sale of Third Coast was included in the 1998 net
realized gains. RISCORP received the funds due in connection with this
transaction in April 1998. In connection with the closing of the sale to
Zenith, RISCORP received notice that Zenith believes that it is entitled
to the proceeds from the sale of Third Coast. RISCORP disputes Zenith's
entitlement to these proceeds and intends to vigorously defend any claim
asserted by Zenith related to the Third Coast transaction.
(4) Issuance of Additional Shares of Stock
In September 1996, RISCORP purchased all of the outstanding stock of IAA
and RISC in exchange for $11.5 million, consisting principally of 790,336
shares of RISCORP's Class A Common Stock valued at $10.9 million on the
date of acquisition. IAA and RISC are workers' compensation management
services companies offering services in Alabama. On the acquisition date,
the excess of the purchase price over the fair value of the net assets
acquired was $11.4 million and was recorded as goodwill.
During the first quarter of 1997, the Company determined that the
goodwill recorded when IAA and RISC were acquired could not be fully
recovered from the profitability of the workers' compensation business
that was then under contract. Therefore, as of December 31, 1996, $2.8
million of goodwill was written off and was reported as amortization
expense. The remaining unamortized goodwill relating to those
acquisitions was $7.8 million at March 31, 1998 (just prior to the
transfer of the goodwill to Zenith on April 1, 1998).
Due to a decrease in the market value of RISCORP's Class A Common Stock,
790,336 additional shares of RISCORP's Class A Common Stock valued at
$0.6 million were issued on January 9, 1998 to the former shareholders of
IAA.
(5) Commitments and Contingencies
On or about January 11, 1999, Zenith filed a lawsuit against RISCORP and
certain of its subsidiaries in federal court in New York setting forth 14
separate causes of action arising out of the Asset Purchase Agreement and
certain ancillary agreements. The complaint seeks an unspecified total
amount of damages, but the amount of compensatory damages sought is in
excess of $30 million, together with an unspecified amount of punitive
damages and attorneys' fees. Zenith's claims include, among others, that
the Company (i) breached certain representations and warranties set forth
in the Asset Purchase Agreement, (ii) failed to transfer certain assets
to Zenith, (iii) failed to operate its business in the ordinary course,
(iv) failed to reimburse Zenith for certain payments, and (v)
fraudulently induced Zenith to execute the Asset Purchase Agreement due
to certain alleged verbal representations made with respect to RISCORP's
Year 2000 compliance.
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On October 16, 1998, RISCORP and certain of its subsidiaries filed an
action against Zenith in federal court in Tampa, Florida alleging a
breach of the Asset Purchase Agreement. The Company amended its complaint
on January 25, 1999, and added ten additional claims arising out of
Zenith's failure to indemnify the Company for certain claims of third
parties. The Company also added two other claims, one for breach of
contract and one for conversion, related to Zenith's taking of $4.1
million the Company had on deposit with the South Carolina Insurance
Department.
The Company intends to vigorously defend those claims asserted by Zenith
and to vigorously prosecute the Company's claims; however, there can be
no assurance as to the ultimate outcome of this litigation.
Between November 20, 1996 and January 31, 1997, nine shareholder
class-action lawsuits were filed against RISCORP and other defendants in
the United States District Court for the Middle District of Florida (the
"Securities Litigation"). In March 1997, the court consolidated these
lawsuits and appointed co-lead plaintiffs and co-lead counsel. The
plaintiffs subsequently filed a consolidated complaint. The consolidated
complaint named as defendants RISCORP, three of its executive officers,
one non-officer director, and three of the underwriters for RISCORP's
initial public offering. The plaintiffs in the consolidated complaint
purport to represent the class of shareholders who purchased RISCORP's
Class A Common Stock between February 28, 1996 and November 14, 1996. The
consolidated complaint alleges that RISCORP's Registration Statement and
Prospectus of February 28, 1996, as well as subsequent statements,
contained false and misleading statements of material fact and omissions,
in violation of Sections 11 and 15 of the Securities Act of 1993,
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule
10b-5 promulgated thereunder. The consolidated complaint seeks
unspecified compensatory damages.
In July 1998, the parties executed a stipulation and agreement of
settlement in which the Company agreed to pay $21 million in cash to a
settlement fund to settle this litigation. The Company paid $0.5 million
as an advance to the settlement fund. On July 29, 1998, the court issued
a preliminary approval order in which it certified the purported class
for settlement purposes. The court held a settlement fairness hearing on
December 15, 1998. At that hearing, the court announced its opinion that
the settlement was fair and reasonable and should be approved. On April
2, 1999, the remaining balance of the settlement fund in the amount of
$20.5 million, plus interest thereon in the amount of $1.4 million, was
paid in full settlement of the litigation.
The Company estimates that $8 million of insurance proceeds will be
available for contribution to the settlement amount, as well as related
costs and expenses. The Company recognized the $21 million proposed
settlement and the related insurance proceeds in the 1997 consolidated
statement of operations.
On August 20, 1997, the Occupational Safety Association of Alabama
Workers' Compensation Fund (the "Fund"), an Alabama self-insured workers'
compensation fund, filed a breach of contract and fraud action against
the Company and others. The Fund entered into a Loss Portfolio Transfer
and Assumption Reinsurance Agreement dated August 26, 1996 and effective
September 1, 1996 with RISCORP National Insurance Company ("RNIC"). Under
the terms of the agreement, RNIC assumed 100 percent of the outstanding
loss reserves (including incurred but not reported losses) as of
September 1, 1996. Co-defendant Peter D. Norman ("Norman") was a
principal and officer of IAA prior to its acquisition by RISCORP in
September 1996. The complaint alleges that Norman and IAA breached
certain fiduciary duties owed to the Fund in connection with the subject
agreement and transfer. The complaint alleges that RISCORP has breached
certain provisions of the agreement and owes the Fund monies under the
terms of the agreement. The Fund claims, per a Loss Portfolio Evaluation
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dated February 26, 1998, that the Fund overpaid RNIC by $6 million in the
subject transaction. The court has granted RNIC's Motion to Compel
Arbitration per the terms and provisions of the agreement. RNIC has
appealed the trial court's ruling which prevents the American Arbitration
Association from administering the arbitration between RNIC and the Fund.
The Alabama Supreme Court has stayed the current arbitration. The dispute
between the Fund and RNIC is expected to be resolved through arbitration.
The other defendants, including IAA, have appealed to the Supreme Court
of Alabama the trial court's denial of their motions to compel
arbitration. RNIC intends to vigorously defend the Fund's claim.
On March 13, 1998, RISCORP Insurance Company ("RIC") and RISCORP Property
& Casualty Insurance Company ("RPC") were added as defendants in a
purported class action filed in the United States District Court for the
Southern District of Florida, styled Bristol Hotel Management
Corporation, et. al., v. Aetna Casualty & Surety Company, a/k/a Aetna
Group, et. al. Case No. 97-2240-CIV-MORENO. The plaintiffs purport to
bring this action on behalf of themselves and a class consisting of all
employers in the State of Florida who purchased or renewed
retrospectively rated or adjusted workers' compensation policies in the
voluntary market since 1985. The suit was originally filed on July 17,
1997 against approximately 174 workers' compensation insurers as
defendants. The complaint was subsequently amended to add the RISCORP
defendants. The amended complaint named a total of approximately 161
insurer defendants. The suit claims that the defendant insurance
companies violated the Sherman Antitrust Act, the Racketeer Influenced
and Corrupt Organizations Act ("RICO"), and the Florida Antitrust Act,
committed breach of contract and civil conspiracy, and were unjustly
enriched by unlawfully adding improper and illegal charges and fees onto
retrospectively rated premiums and otherwise charging more for those
policies than allowed by law. The suit seeks compensatory and punitive
damages, treble damages under the Antitrust and RICO claims, and
equitable relief. RIC and RPC moved to dismiss the amended complaint and
have also filed certain motions to dismiss the amended complaint filed by
various other defendants.
On August 26, 1998, the district court issued an order dismissing the
entire suit against all defendants on one of the grounds identified in
the various motions to dismiss filed by the defendants. The district
court indicated that all other grounds and motions to dismiss that were
pending at that time were mooted by the dismissal. On September 13, 1998,
the plaintiffs filed a Notice of Appeal. On February 9, 1999, the
district court issued, sua sponte, an Order of Reconsideration in which
the court indicated its desire to vacate the dismissal of the RICO claims
and pendant state claims based on a recent decision of the United States
Supreme Court. On March 17, 1999, plaintiffs-appellants filed an
unopposed motion to remand the action to the district court, citing the
Order of Reconsideration. As of this date, the Eleventh Circuit has not
ruled on the motion to remand. Management will continue to monitor the
progress of the appeals process as necessary and intends to defend the
case vigorously if it is returned to the district court for further
proceedings.
The Company, in the ordinary course of business, is party to various
lawsuits. Based on information presently available, and in the light of
legal and other defenses available to the Company, contingent liabilities
arising from such threatened and pending litigation in the ordinary
course of business are not presently considered by management to be
material.
Other than as noted herein, no provision had been made in the
accompanying consolidated financial statements for the foregoing matters.
Certain of the related legal expenses may be covered under directors and
officers' insurance coverage maintained by the Company.
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(6) Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 established new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
standard had no impact on the Company's net income or shareholders'
equity. In addition to certain other adjustments, SFAS 130 requires
unrealized gains or losses on the Company's available for sale securities,
which prior to adoption were reported separately in shareholders' equity,
to be included in other comprehensive income.
(7) Reclassifications
For comparative purposes, certain amounts in the financial statements
have been reclassified from amounts previously reported. These
reclassifications had no effect on previously reported shareholders'
equity or net income.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements,
particularly with respect to Risk Factors, Legal Proceedings, and the
Liquidity and Capital Resources section of Management's Discussion and
Analysis of Financial Condition and Results of Operations. Additional
written or oral forward-looking statements may be made by RISCORP, Inc.
("RISCORP") and its subsidiaries (collectively, the "Company") from time
to time in filings with the Securities and Exchange Commission or
otherwise. Such forward-looking statements are within the meaning of that
term in Sections 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Such statements may include, without
limitation, projections of revenues, income, losses, cash flows, plans
for future operations, financing needs, estimates concerning the effects
of litigation or other disputes, as well as assumptions regarding any of
the foregoing.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted. Future events and
actual results could differ materially from those set forth in or
underlying the forward-looking statements. Many factors could contribute
to such differences and include, among others, the actual outcome of
pending litigation, including, without limitation, the litigation
currently pending with Zenith; the Company's ability to gain approval and
receive payment from the Florida Department of Labor for certain refund
applications; the Company's need for additional capital to meet operating
requirements; and other factors mentioned elsewhere in this report.
Recent Developments
Asset Purchase Agreement with Zenith
See Part 1, Item 1, Notes to Consolidated Financial Statements, Note 2
for further discussion of the Zenith transaction.
Legal Developments
See "Part II, Item 1, Legal Proceedings."
Overview
General
As discussed more fully in Note 2 to the consolidated financial
statements, RISCORP and certain of its subsidiaries sold substantially
all of their assets and transferred certain liabilities to Zenith on
April 1, 1998. In connection with the sale to Zenith, RISCORP ceased
substantially all of its former business operations, including its
insurance operations, effective April 1, 1998. Accordingly, after such
date, the Company's operations consisted primarily of the administration
of the day-to-day activities of the surviving corporate entities,
compliance with the provisions of the Asset Purchase Agreement, and the
investment, protection, and maximization of the remaining assets of the
Company. At the present time, RISCORP has no plans to resume any
operating activities.
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Since April 1, 1998, the Company has had no employees or insurance
operations, and has provided no services to self-insurance funds or other
insurance related entities. Because of these significant changes in the
operating activities of the Company after April 1, 1998, a comparison of
the results of operations for the three months ended March 31, 1999 to
the comparable period in 1998 is meaningless. Therefore, the results of
operations for the three months ended March 31, 1999 are explained
separately with limited comparison to the comparable prior period. The
results of operations of the Company prior to the April 1, 1998 sale to
Zenith are included to comply with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Securities and Exchange Commission; however, those results of operations
are not indicative of the operations of the Company since April 1, 1998
and are not indicative of the anticipated future operations of the
Company.
Results of Operations
Three Months Ended March 31, 1999
During the three months ended March 31, 1999, the Company's primary
operating activities were the defense of the Proposed Business Balance
Sheet, the investment of the $25 million initial payment received from
Zenith on April 2, 1998, the investment of other invested assets retained
by the Company, compliance with the provisions of the Asset Purchase
Agreement; converting the taxes receivable to cash, collecting the sale
proceeds from Zenith, the investment of the $50.8 million of sale
proceeds and interest collected from Zenith on March 26, 1999, efforts to
maximize asset recoveries, and the administration of the day-to-day
activities of the surviving corporate entities. Compliance with the
provisions of the Asset Purchase Agreement included the transfer of all
of the assets and liabilities, not retained by the Company, to Zenith,
and assisting with the orderly transition of the Company's insurance
operations to Zenith.
The following is an analysis of other balances contained on the March 31,
1999 balance sheet.
Restricted cash and cash equivalents consist primarily of $12.8
million held in escrow in connection with the sale to Zenith,
$3.8 million on deposit with various governmental agencies, $0.3
million pledged to secure a letter of credit, and $0.2 million
held in trust in connection with a fronting agreement between
Virginia Surety Insurance Company, Inc. and RISCORP Management
Services, Inc.
Investments totaling approximately $75 million consist
primarily of United States Government obligations.
The $0.6 million receivable from Zenith represents the
remaining purchase price to be received from Zenith as
determined by the Company in connection with the Final Business
Balance Sheet. This balance was received by RISCORP in April
1999.
Deferred income taxes of $3.2 million consist of federal and
state income taxes that are anticipated to be recovered in
future periods.
Income taxes recoverable of $5.3 million represent tax refunds
which have been applied for.These income tax refunds were
received in April 1999.
Other assets of $0.2 million consist principally of accrued
investment income.
15
<PAGE>
Prepaid expenses of $5 million consist principally of prepaid
insurance coverages of $3.9 million and retainers paid to
certain professionals and consultants of $1.1 million.
Accounts receivable-other of $6.9 million consist principally
of a receivable of $2.3 million that is expected to be realized
upon the redemption of RISCORP's outstanding stock and $4.6
million of certain insurance recoverables that was received in
May 1999.
Accrued expenses and other liabilities totaled approximately
$28.6 million and consisted principally of $21.9 million of an
accrued legal settlement (this amount was paid in April 1999),
$0.6 million of trade accounts payable, $0.5 million of unpaid
restructuring cost relating to the June 1997 Corporate
restructuring, $1.1 million of accrued legal, accounting,
auditing and actuarial expenses, $1.3 million of income taxes
payable, and $3.2 million of other accruals and payables.
The Company's operating results for the three months ended March 31, 1999
resulted in a net loss of $0.8 million.
Net investment income for the three months ended March 31, 1999 was $1.8
million. Net investment income consisted of interest income on the
receivable from Zenith of $1.3 million, interest income on the $12.8
million balance in escrow of $0.1 million, and other investment income of
$0.4 million.
Operating expenses for the three months ended March 31, 1999 totaled $2.6
million and consisted of the following:
Commissions, underwriting, and administrative expenses totaled
$1.2 million and consisted of $0.3 million of management expenses;
$0.3 million of accounting and auditing expenses; $0.3 million of
legal expenses; $0.2 million of recurring operating expenses such
as rent, telephone, insurance and similar costs, and $0.1 million
of other expenses.
Interest expense of $1.4 million consisted principally of the
interest payable on the accrued legal settlement mentioned above.
Depreciation and amortization expense was $40,000. The Company
transferred all assets subject to amortization to Zenith in
connection with the sale and retained approximately $0.4 million
of fixed assets (consisting principally of computer equipment)
that is being depreciated over three years.
The weighted average common and common share equivalents outstanding for
the three months ended March 31, 1999 was 37,347,281 as compared to
36,868,114 for the three months ended March 31, 1998.
Three Months Ended March 31, 1998
The discussion that follows relates to the operations and operating
philosophy of the Company's activities that existed prior to April 1,
1998 and includes the operating results for the three months ended March
31, 1998.
Prior to 1996, the Company's at-risk operations were focused in Florida.
During 1996, the Company acquired RISCORP National Insurance Company
("RNIC") and its 19 licenses and assumed business from several self
insurance funds outside of Florida which allowed the Company to diversify
its at-risk operations.
16
<PAGE>
The majority of the Company's premiums were written in Florida, a
regulated pricing state where premiums for guaranteed cost products were
based on state-approved rates. However, prior to the sale to Zenith, the
Company also offered policies that were subject to premium reductions as
high deductible plans, participating dividend plans, or other loss
sensitive plans. Pricing for these plans tended to be more competitively
based, and the Company experienced increased competition during 1997 and
1998 in pricing these plans.
In addition, in June 1997, the Company implemented a strategic plan to
consolidate several of its field offices and announced its intention to
close all field offices, except Charlotte, North Carolina, and
Birmingham, Alabama, by the end of 1997, and to cease writing new
business in certain states including Oklahoma, Virginia, Missouri,
Mississippi, Louisiana and Kansas. The estimated impact of the decision
to discontinue writing business in those states was a reduction of
approximately $16 million in direct premiums written.
The Company attempted to lower claims costs by applying managed care
techniques and programs to workers' compensation claims, particularly by
providing prompt medical intervention, integrating claims management and
customer service, directing care of injured employees through a managed
care provider network, and availing itself of potential recoveries under
subrogation and other programs.
Part of the Company's claims management philosophy was to seek recoveries
for claims which were reinsured or which could be subrogated or submitted
for reimbursement under various states' recovery programs. As a result,
the Company's losses and loss adjustment expenses were offset by
estimated recoveries from reinsurers under specific excess of loss and
quota share reinsurance agreements, subrogation from third parties and
state "second disability" funds, including the Florida Special Disability
Trust Fund ("SDTF").
The following table shows direct, assumed, ceded and net earned premiums
for the first quarter of 1998 (in thousands):
3-31-98
---------------
Direct premiums earned $ 48,416
Assumed premiums earned 79
Premiums ceded to reinsurers (22,676)
----------
Net premiums earned $ 25,819
========
There were no direct, assumed, ceded, or net earned premiums after the
April 1, 1998 sale to Zenith. At March 31, 1998, there were 18,145
policies in force.
Fee income for the first three months of 1998 was $5.7 million. After
April 1, 1998, the Company ceased generating fee income when those
activities were transferred to Zenith.
Net realized gains during the first quarter of 1998 were $1.5 million,
consisted principally of the $1.3 million gain on the sale of Third Coast
as more fully discussed in Note 3 of the accompanying consolidated
financial statements.
17
<PAGE>
Net investment income for the three months ended March 31, 1998 was $3.3
million consisting entirely of earnings from the investment portfolio,
excluding realized gains and losses.
The loss ratio for the three months ended March 31, 1998 was 93 percent.
Losses and loss adjustment expenses for the three months ended March 31,
1998 were $24 million. Unallocated loss adjustment expenses for the three
months ended March 31, 1998 were $2.6 million. Commissions, underwriting,
and administrative expenses for the three months ended March 31, 1998
were $15.5 million. Interest expense for the three months ended March 31,
1998 was $0.5 million. Depreciation and amortization expense for the
three months ended March 31, 1998 was $3.1 million.
The weighted average common and common share equivalents outstanding for
the three months ended March 31, 1998 was 36,868,114.
Liquidity and Capital Resources
The Company historically met its cash requirements and financed its
growth through cash flow generated from operations and borrowings. The
Company's primary sources of cash flow from operations were premiums and
investment income, and its cash requirements consisted principally of
payment of losses and loss adjustment expenses, support of its operating
activities, including various reinsurance agreements and managed care
programs and services, capital surplus needs for the insurance
subsidiaries, and other general and administrative expenses. RISCORP and
certain of its subsidiaries sold substantially all of their assets and
transferred certain liabilities to Zenith on April 1, 1998. In connection
with that sale to Zenith, the Company ceased substantially all of its
former business operations and, accordingly, after April 1, 1998, the
Company's primary source of cash flow has been generated from investment
income. The Company's future cash requirements are expected to be
satisfied through investment income and the liquidation of investments.
Cash flow from operations for the three months ended March 31, 1999 and
1998 was $13.5 million, and ($20.9) million, respectively. The increase
from 1998 to 1999 was due primarily to the sale to Zenith and the
cessation of substantially all the Company's former business operations.
The Company has projected cash flows through December 1999 and believes
it has sufficient liquidity and capital resources to support its
operations.
As of March 31, 1999 and 1998, RISCORP's insurance subsidiaries had
combined statutory capital and surplus of $123.6 million and $98.1
million, respectively. The individual capital and surplus of each of
RISCORP's insurance subsidiaries exceeded the minimum statutory capital
and surplus required by their state of domicile.
The National Association of Insurance Commissioners has adopted
risk-based capital standards to determine the capital requirements of an
insurance carrier based on the risks inherent in its operations. The
standards, which have not yet been adopted in Florida, require the
computation of a risk-based capital amount which is then compared to a
carrier's actual total adjusted capital. The computation involves
applying factors to various financial data to address four primary risks:
asset risk, insurance underwriting risk, credit risk, and off-balance
sheet risk. These standards provide for regulatory intervention when the
percentage of total adjusted capital to authorized control level
risk-based capital is below certain levels. At March 31, 1999 and
December 31, 1998, RISCORP's insurance subsidiaries' statutory surplus
was in excess of any risk-based capital action level requirements.
18
<PAGE>
Year 2000
The term "Year 2000 issue" is a general term used to describe various
problems that may result from the improper processing of date and
date-sensitive calculations by computers and other machinery as the Year
2000 is approached and reached. These problems may arise from hardware
and software unable to distinguish dates in the "2000's" from dates in
the "1900's" and from other sources, such as the use of special codes and
conventions that make use of a date field.
Effective April 1, 1998, RISCORP ceased substantially all of its former
business operations, including its core insurance and managerial services
operations. RISCORP's computer systems and proprietary computer software,
including the policy issue and management system and the claims systems,
were included in the assets sold to Zenith pursuant to the Asset Purchase
Agreement.
Effective April 1, 1998, the Company entered into a computer outsourcing
agreement. Under the terms of that agreement, the vendor is to provide
the Company with computer configuration, software installation, network
configuration and maintenance, telecommunication coordination, computer
maintenance, and other computer-related services. The agreement is for a
period of 36 months.
Due to the cessation of its operations, RISCORP does not believe it has
any material third-party relationships that present significant Year 2000
risks. The Company has requested confirmation from the financial
institutions with which it maintains accounts that such institutions are
Year 2000 compliant.
Based on its limited operations, the Company believes its most reasonable
likely worst case scenario Year 2000 problem would be a temporary
inability to access its accounts with financial institutions if such
institutions' systems are not Year 2000 compliant. Because the Company
does not expect that the Year 2000 will have a material adverse effect on
the Company, it has determined that it is unnecessary to develop a
contingency plan.
Part II Other Information
Item 1. Legal Proceedings
On or about January 11, 1999, Zenith filed a lawsuit against RISCORP
and certain of its subsidiaries in federal court in New York setting
forth 14 separate causes of action arising out of the Asset Purchase
Agreement and certain ancillary agreements. The complaint seeks an
unspecified total amount of damages, but the amount of compensatory
damages sought is in excess of $30 million, together with an unspecified
amount of punitive damages and attorneys' fees. Zenith's claims include,
among others, that the Company (i) breached certain representations and
warranties set forth in the Asset Purchase Agreement, (ii) failed to
transfer certain assets to Zenith, (iii) failed to operate its business
in the ordinary course, (iv) failed to reimburse Zenith for certain
payments, and (v) fraudulently induced Zenith to execute the Asset
Purchase Agreement due to certain alleged verbal representations made
with respect to RISCORP's Year 2000 compliance.
On October 16, 1998, RISCORP and certain of its subsidiaries filed an
action against Zenith in federal court in Tampa, Florida alleging a
breach of the Asset Purchase Agreement. The Company amended its complaint
19
<PAGE>
in Florida on January 25, 1999, and added ten additional claims arising
out of Zenith's failure to indemnify the Company for certain claims of
third parties. The Company also added two other claims, one for breach of
contract and one for conversion, related to Zenith's taking of $4.1
million the Company had on deposit with the South Carolina Insurance
Department.
The Company intends to vigorously defend those claims asserted by Zenith
and to vigorously prosecute the Company's claims; however, there can be
no assurance as to the ultimate outcome of this litigation.
Between November 20, 1996 and January 31, 1997, nine shareholder
class-action lawsuits were filed against RISCORP and other defendants in
the United States District Court for the Middle District of Florida (the
"Securities Litigation"). In March 1997, the court consolidated these
lawsuits and appointed co-lead plaintiffs and co-lead counsel. The
plaintiffs subsequently filed a consolidated complaint. The consolidated
complaint named as defendants RISCORP, three of its executive officers,
one non-officer director, and three of the underwriters for RISCORP's
initial public offering. The plaintiffs in the consolidated complaint
purport to represent the class of shareholders who purchased RISCORP's
Class A Common Stock between February 28, 1996 and November 14, 1996. The
consolidated complaint alleges that RISCORP's Registration Statement and
Prospectus of February 28, 1996, as well as subsequent statements,
contained false and misleading statements of material fact and omissions,
in violation of Sections 11 and 15 of the Securities Act of 1993,
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule
10b-5 promulgated thereunder. The consolidated complaint seeks
unspecified compensatory damages.
In July 1998, the parties executed a stipulation and agreement of
settlement in which the Company agreed to pay $21 million in cash to a
settlement fund to settle this litigation. The Company paid $0.5 million
as an advance to the settlement fund. On July 29, 1998, the court issued
a preliminary approval order in which it certified the purported class
for settlement purposes. The court held a settlement fairness hearing on
December 15, 1998. At that hearing, the court announced its opinion that
the settlement was fair and reasonable and should be approved. On April
2, 1999, the remaining balance of the settlement funds in the amount of
$20.5 million, plus interest thereon in the amount of $1.4 million, were
paid in full settlement of the litigation.
The Company estimates that $8 million of insurance proceeds will be
available for contribution to the settlement amount, as well as related
costs and expenses. The Company recognized the $21 million proposed
settlement and the related insurance proceeds in the 1997 consolidated
statement of operations.
On August 20, 1997, the Occupational Safety Association of Alabama
Workers' Compensation Fund (the "Fund"), an Alabama self-insured workers'
compensation fund, filed a breach of contract and fraud action against
the Company and others. The Fund entered into a Loss Portfolio Transfer
and Assumption Reinsurance Agreement dated August 26, 1996 and effective
September 1, 1996 with RNIC. Under the terms of the agreement, RNIC
assumed 100 percent of the outstanding loss reserves (including incurred
but not reported losses) as of September 1, 1996. Co-defendant Peter D.
Norman ("Norman") was a principal and officer of IAA prior to its
acquisition by RISCORP in September 1996. The complaint alleges that
Norman and IAA breached certain fiduciary duties owed to the Fund in
connection with the subject agreement and transfer. The complaint alleges
that RISCORP has breached certain provisions of the agreement and owes
the Fund monies under the terms of the agreement. The Fund claims, per a
Loss Portfolio Evaluation dated February 26, 1998, that the Fund overpaid
RNIC by $6 million in the subject transaction. The court has granted
RNIC's Motion to Compel Arbitration per the terms and provisions of the
agreement. RNIC has appealed the trial court's ruling which prevents the
American Arbitration Association from administering the arbitration
between RNIC and the Fund. The Alabama Supreme Court has stayed the
20
<PAGE>
current arbitration. The dispute between the Fund and RNIC is expected to
be resolved through arbitration. The other defendants, including IAA,
have appealed to the Supreme Court of Alabama the trial court's denial of
their motions to compel arbitration. RNIC intends to vigorously defend
the Fund's claim.
On March 13, 1998, RIC and RPC were added as defendants in a purported
class action filed in the United States District Court for the Southern
District of Florida, styled Bristol Hotel Management Corporation, et.
al., v. Aetna Casualty & Surety Company, a/k/a Aetna Group, et. al. Case
No. 97-2240-CIV-MORENO. The plaintiffs purport to bring this action on
behalf of themselves and a class consisting of all employers in the State
of Florida who purchased or renewed retrospectively rated or adjusted
workers' compensation policies in the voluntary market since 1985. The
suit was originally filed on July 17, 1997 against approximately 174
workers' compensation insurers as defendants. The complaint was
subsequently amended to add the RISCORP defendants. The amended complaint
named a total of approximately 161 insurer defendants. The suit claims
that the defendant insurance companies violated the Sherman Antitrust
Act, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and
the Florida Antitrust Act, committed breach of contract and civil
conspiracy, and were unjustly enriched by unlawfully adding improper and
illegal charges and fees onto retrospectively rated premiums and
otherwise charging more for those policies than allowed by law. The suit
seeks compensatory and punitive damages, treble damages under the
Antitrust and RICO claims, and equitable relief. RIC and RPC moved to
dismiss the amended complaint and have also filed certain motions to
dismiss the amended complaint filed by various other defendants.
On August 26, 1998, the district court issued an order dismissing the
entire suit against all defendants on one of the grounds identified in
the various motions to dismiss filed by the defendants. The district
court indicated that all other grounds and motions to dismiss that were
pending at that time were mooted by the dismissal. On September 13, 1998,
the plaintiffs filed a Notice of Appeal. On February 9, 1999, the
district court issued, sua sponte, an Order of Reconsideration in which
the court indicated its desire to vacate the dismissal of the RICO claims
and pendant state claims based on a recent decision of the United States
Supreme Court. On March 17, 1999, plaintiffs-appellants filed an
unopposed motion to remand the action to the district court, citing the
Order of Reconsideration. As of this date, the Eleventh Circuit has not
ruled on the motion to remand. Management will continue to monitor the
progress of the appeals process as necessary and intends to defend the
case vigorously if it is returned to the district court for further
proceedings.
The Company, in the ordinary course of business, is party to various
lawsuits. Based on information presently available, and in the light of
legal and other defenses available to the Company, contingent liabilities
arising from such threatened and pending litigation in the ordinary
course of business are not presently considered by management to be
material.
Other than as noted herein, no provision had been made in the
accompanying consolidated financial statements for the foregoing matters.
Certain of the related legal expenses may be covered underdirectors and
officers' insurance coverage maintained by the Company.
Item 2. Changes to Securities
None.
Item 3.Defaults Upon Senior Securities
None.
21
<PAGE>
Item 4.Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Shareholder Proposals
The proxy statement to be solicited by management of RISCORP with respect
to the 1999 Annual Meeting of Shareholders will confer discretionary
authority to vote on proposals of shareholders of RISCORP intended to be
presented for consideration at such Annual Meeting that are submitted to
RISCORP after May 14, 1999.
Item 6.Exhibits and Reports on Form 8-K
a) Exhibits
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedules
b) Reports on Form 8-K
The Company filed a report on Form 8-K on March 23, 1999 with
respect to the determination of the Final Business Balance Sheet
by the Independent Expert.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RISCORP, INC.
(Registrant)
By: /s/Walter E. Riehemann
Walter E. Riehemann
Senior Vice President and Secretary
Date: May 14, 1999
By: /s/Edward W. Buttner IV
Edward W. Buttner IV, CPA
Principal Accounting Officer
Date: May 14, 1999
23
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11
RISCORP, INC. AND SUBSIDIARIES
Statement Re. Computation of Per Share Earnings
(in thousands, except share and per share amounts)
Three Months Ended March 31
---------------------------------------
1999 1998
--------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net loss $ (839) $ (9,321)
================ ================
Weighted average common and common share equivalents outstanding:
Average number of common shares outstanding 36,868,114 36,868,114
Restricted stock vested 479,167 --
------------ ------------
Weighted average common shares outstanding - (basic) 37,347,281 36,868,114
============ ============
Weighted average common and common share
equivalents outstanding - (diluted) 37,347,281 36,868,114
============= ==============
Net loss per common share--basic $ (0.02) $ (0.25)
============= ==============
Net loss per common share--diluted $ (0.02) $ (0.25)
============= ==============
</TABLE>
24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
Exhibit 27
RISCORP, INC. AND SUBSIDIARIES
Financial Data Schedule
As of and for the three month period ended March 31, 1999
(Unaudited)
(in thousands)
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS AS OF AND FOR THE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999<F1><F2><F3>
<DEBT-HELD-FOR-SALE> 74,984
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 74,984
<CASH> 26,752
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 123,286
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 386
<OTHER-SE> 94,309
<TOTAL-LIABILITY-AND-EQUITY> 123,286
0
<INVESTMENT-INCOME> 1,799
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 0
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (839)
<INCOME-TAX> 0
<INCOME-CONTINUING> (839)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (839)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Net investment income is reported net of any realized gains and losses in
the Statement of Income.
<F2>Financial Data Schedule information for the year
ending December 31, 1998 is incorporated by reference herein to FORM 10-K annual
report as filed with the Securities and Exchange Commission by the Company on
March 23, 1999.
<F3>Amounts inapplicable or not disclosed as a separate line on
the Statement of Financial Position or Results of Operations are reported as 0
herein.
</FN>
</TABLE>
