<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(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, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
COMMISSION FILE NUMBER: 000-25273
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-3422536
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
360 CENTRAL AVENUE, ST. PETERSBURG, FLORIDA 33701
------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(727) 803-2040
--------------------------------------------------
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 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 [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
Class: Common Stock, $.01 par value Outstanding at November 14, 2000:
12,800,261
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<PAGE> 2
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements...................................................... 1
Consolidated Balance Sheets as of December 31, 1999
and September 30, 2000.................................................... 1
Consolidated Statements of Operations for the three months
and nine months ended September 30, 1999 and 2000......................... 2
Consolidated Statement of Shareholders' Equity for the year
ended December 31, 1999 and the nine months ended
September 30, 2000........................................................ 3
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 2000......................................... 4
Notes to Consolidated Financial Statements................................ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk................ 12
PART II.. OTHER INFORMATION
Item 1. Legal Proceedings......................................................... 12
Item 5. Other Information........................................................ 13
Item 6. Exhibits and Reports on Form 8-K.......................................... 13
</TABLE>
The statements contained in this report on Form 10-Q that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934, including statements regarding the Company's expectations, hopes,
beliefs, intentions, or strategies regarding the future. Forward-looking
statements include statements regarding, among other things: (i) the potential
loss of material customers; (ii) the failure to properly manage growth and
successfully integrate acquired businesses; (iii) the Company's financing
plans; (iv) trends affecting the Company's financial condition or results of
operations; (v) the Company's growth and operating strategies; (vi) the ability
to attract and retain qualified sales, information services and management
personnel; (vii) the impact of competition from new and existing competitors;
(viii) the financial condition of the Company's clients; (ix) potential
increases in the Company's costs; (x) the declaration and payment of dividends;
(xi) the potential for unfavorable interpretation of existing government
regulations or new government legislation; (xii) the impact of general economic
conditions and interest rate fluctuations on the demand for the Company's
services, including flood zone determination services; (xiii) the outcome of
certain administrative and judicial proceedings involving the Company's
principal customer; (xiv) uncertainties regarding the market acceptance of the
Company's new services;(xv) difficulties in establishing positive name
recognition in the marketplace; (xvi) the Company's ability to service new
unaffiliated customers, including the development and implementation of
e-business initiatives; (xvii) difficulties in achieving expected expense
reductions as a result of management initiatives; and (xviii) the outcome of
certain pending litigation against the Company and certain of its officers and
directors. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof and the Company assumes no
obligation to update any such forward-looking statement. Among the factors that
could cause actual results to differ materially are the factors detailed in
Item 2 of this report and the risks discussed under the caption "Risk Factors"
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999, as filed with the Securities Exchange Commission on March
30, 2000. Prospective investors should also consult the risks described from
time to time in the Company's Reports on Form 10-Q, 8-K and 10-K and Annual
Reports to Shareholders.
ii
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................................. $ 4,702,861 $ 5,207,466
Accounts receivable, net ................................... 3,621,714 3,103,618
Due from affiliates ........................................ 2,920,543 2,882,495
Income taxes receivable .................................... -- 314,006
Prepaid expenses and other assets .......................... 1,572,976 1,581,954
----------- -----------
Total current assets .................................. 12,818,094 13,089,539
PROPERTY AND EQUIPMENT, net ................................... 7,225,494 8,333,454
OTHER ASSETS
Goodwill, net .............................................. 16,257,663 15,578,417
Customer contracts, net .................................... 1,116,667 966,667
Deferred tax assets ........................................ 1,063,366 686,980
Capitalized software costs, net ............................ 976,225 954,005
Other ...................................................... 33,398 496,233
----------- -----------
Total assets ......................................... $39,490,907 $40,105,295
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt .......................... $ 481,637 $ 309,120
Accounts payable, trade .................................... 990,495 1,886,920
Due to affiliates .......................................... 12,833 37,835
Employee related accrued expenses .......................... 2,294,858 2,520,234
Other accrued expenses ..................................... 1,293,060 1,731,585
Income taxes payable ....................................... 413,241 --
Deferred revenue ........................................... 214,891 53,723
----------- -----------
Total current liabilities ............................ 5,701,015 6,539,417
LONG-TERM DEBT, less current portion .......................... 219,857 --
DEFERRED REVENUE .............................................. 684,915 660,876
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 par value; 20,000,000 shares
authorized, no shares issued and outstanding ............. -- --
Common Stock, $.01 par value; 100,000,000 shares authorized,
12,678,743 and 12,800,261 shares issued and outstanding at
December 31, 1999 and September 30, 2000, respectively ... 126,787 128,002
Additional paid-in capital ................................. 26,810,282 27,582,267
Retained earnings .......................................... 5,948,051 5,194,733
----------- -----------
Total shareholders' equity ........................... 32,885,120 32,905,002
----------- -----------
Total liabilities and shareholders' equity ........... $39,490,907 $40,105,295
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
1
<PAGE> 4
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Outsourcing services - affiliated ............ $ 9,757,699 $ 9,677,754 $ 32,488,239 $ 28,659,004
Outsourcing services ......................... 1,503,489 1,744,877 5,549,683 4,809,871
Flood zone determination services ............ 4,170,414 4,471,168 13,782,952 12,635,221
Flood zone determination services -
affiliated ................................ 214,946 276,545 409,001 749,184
------------ ------------ ------------ ------------
Total revenues ......................... 15,646,548 16,170,344 52,229,875 46,853,280
------------ ------------ ------------ ------------
EXPENSES
Cost of outsourcing services ................. 9,084,260 9,072,449 26,859,161 26,826,525
Cost of flood zone determination services .... 1,899,411 1,992,061 6,224,736 5,852,919
Selling, general and administrative .......... 2,742,060 3,916,174 7,688,998 9,431,440
Management services from Parent .............. 535,813 515,870 1,734,168 1,494,918
Depreciation and amortization ................ 1,405,120 1,297,120 4,137,069 4,049,729
------------ ------------ ------------ ------------
Total expenses ......................... 15,666,664 16,793,674 46,644,132 47,655,531
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) ......................... (20,116) (623,330) 5,585,743 (802,251)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income .............................. 68,009 71,091 290,247 201,247
Interest expense ............................. (295,864) (10,421) (776,370) (52,831)
------------ ------------ ------------ ------------
Total other income (expense) ........... (227,855) 60,670 (486,123) 148,416
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES ............................. (247,971) (562,660) 5,099,620 (653,835)
PROVISION (BENEFIT) FOR INCOME TAXES ............ (19,900) (6,117) 2,160,700 99,483
------------ ------------ ------------ ------------
NET INCOME (LOSS) ............................... $ (228,071) $ (556,543) $ 2,938,920 $ (753,318)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE .............. $ (.02) $ (.04) $ .24 $ (.06)
============ ============ ============ ============
Weighted average common shares outstanding ...... 12,678,743 12,800,261 12,370,485 12,791,835
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE> 5
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1999 ..................... $105,242 $ 5,830,930 $ 2,752,991 $ 8,689,163
Issuance of Common Stock as partial
consideration for the acquisition of
Colonial Claims .......................... 1,545 1,698,455 -- 1,700,000
Initial public offering of Common Stock,
net of offering costs ..................... 20,000 19,143,897 -- 19,163,897
Issuance of stock options to
non-employees ............................. -- 137,000 -- 137,000
Net income ................................. -- -- 3,195,060 3,195,060
-------- ----------- ----------- ------------
Balance at December 31, 1999 ................... 126,787 26,810,282 5,948,051 32,885,120
Issuance of Common Stock in connection
with earn-out computation for Colonial
Claims acquisition (unaudited)............. 1,215 298,785 -- 300,000
Non-cash compensation expense related to
phantom stock plans (unaudited) ........... -- 338,200 -- 338,200
Compensation expense related to stock
options issued to non-employees
(unaudited) ............................... -- 135,000 -- 135,000
Net loss (unaudited) ....................... -- -- (753,318) (753,318)
-------- ----------- ----------- ------------
Balance at September 30, 2000 (unaudited) ...... $128,002 $27,582,267 $ 5,194,733 $ 32,905,002
======== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
3
<PAGE> 6
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................ $ 2,938,920 $ (753,318)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization .............................. 4,137,069 4,049,729
Loss on disposal of property and equipment ................. 163,228 177,546
Compensation expense related to issuance of stock options
to non-employees ......................................... -- 135,000
Non-cash compensation expense related to phantom
stock plans .............................................. -- 338,200
Write-off of deferred financing costs ...................... 244,752 --
Deferred income taxes, net ................................. 451,911 376,386
Changes in assets and liabilities:
Accounts receivable ...................................... 664,954 518,096
Income taxes recoverable ................................. 1,142,858 (314,006)
Prepaid expenses and other current assets ................ (310,196) 104,425
Other assets ............................................. (59,874) (478,992)
Accounts payable, trade .................................. (25,664) 896,425
Employee related accrued expenses ........................ 657,776 225,376
Other accrued expenses ................................... (708,867) 738,525
Income taxes payable ..................................... -- (413,241)
Deferred revenue ......................................... 4,183 (185,207)
------------ -----------
Net cash provided by operating activities .............. 9,301,050 5,414,944
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Colonial Claims, net of cash acquired ......... 1,092 --
Repayment of acquisition debt ................................ (500,000) --
Payment of dividend to prior Colonial Claims shareholders .... (670,000) --
Issuance of note receivable .................................. -- (500,000)
Purchases of property and equipment .......................... (2,231,214) (4,081,015)
------------ -----------
Net cash used in investing activities .................. (3,400,122) (4,581,015)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds received from initial public offering ........... 19,163,897 --
Repayment of debt ............................................ (9,660,613) (392,374)
Repayment of affiliated notes and interest payable ........... (14,708,420) --
Collection of affiliated note and interest receivable ........ 5,271,406 --
Net advances to (from) affiliates ............................ (4,474,831) 63,050
------------ -----------
Net cash used in financing activities ................. (4,408,561) (329,324)
------------ -----------
INCREASE IN CASH AND CASH EQUIVALENTS .......................... 1,492,367 504,605
CASH AND CASH EQUIVALENTS, beginning of period .................. 1,868,867 4,702,861
------------ -----------
CASH AND CASH EQUIVALENTS, end of period ........................ $ 3,361,234 $ 5,207,466
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
ACTIVITIES:
Cash paid for interest ........................................ $ 1,013,716 $ 50,557
============ ===========
Cash paid for income taxes .................................... $ 920,000 $ 450,345
============ ===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Purchase of net assets of Colonial Claims:
Total consideration consists of:
Common Stock ...................................... $ 1,700,000
Cash .............................................. 500,000
Short term obligation ............................. 500,000
------------
$ 2,700,000
============
Fair value of assets acquired ..................... $ 1,846,555
Liabilities assumed ............................... 1,478,306
------------
Net assets ........................................ 368,249
Goodwill .......................................... 2,331,751
------------
$ 2,700,000
============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 7
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements of Insurance
Management Solutions Group, Inc. and subsidiaries (the "Company") have been
prepared in accordance with the instructions to Form 10-Q and do not include
all of the disclosures required by generally accepted accounting principles. In
the opinion of management, the accompanying unaudited consolidated financial
statements include all adjustments, consisting of normal and recurring
adjustments necessary for a fair presentation of the consolidated financial
position, results of operations and cash flows for the periods presented. The
accompanying consolidated financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended December 31,
1999, as filed with the Securities and Exchange Commission on March 30, 2000.
The results of operations for the three months and nine months ended September
30, 2000 are not necessarily indicative of the results that should be expected
for a full fiscal year.
Net Income (Loss) Per Common Share
Net income (loss) per common share, which represents both basic and
diluted earnings per share ("EPS"), is computed by dividing net income (loss)
by the weighted average common shares outstanding. The following table
reconciles the numerator and denominator of the basic and dilutive EPS
computation:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -----------------------------
1999 2000 1999 2000
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) ......................... $ (228,071) $ (556,543) $ 2,938,920 $ (753,318)
============ ============ =========== ============
Denominator:
Weighted average number of Common Shares
used in basic EPS ...................... 12,678,743 12,800,261 12,370,485 12,791,835
Diluted stock options ..................... -- -- -- --
------------ ------------ ----------- ------------
Weighted average number of Common Shares
and diluted potential Common Shares used
in diluted EPS ......................... 12,678,943 12,800,261 12,370,485 12,791,835
============ ============ =========== ============
</TABLE>
As of September 30, 1999 and 2000, options to purchase 635,500 and
703,000 shares, respectively, of Common Stock were outstanding but were not
included in the computation of diluted earnings per share as the inclusion of
such shares would have an anti-dilutive effect.
Reclassifications
Certain prior year balances have been reclassified in order to conform
to the current year's presentation.
Compensation Expense
During the three months ended September 30, 2000, the Company
recognized approximately $338,000 in additional compensation expense (of which
approximately $145,000 relates to prior quarters in 2000 and 1999) resulting
from the vesting of benefits payable to certain current and former officers and
directors of the Company under the Amended and Completely Restated Phantom Stock
Plan (the "BFC Plan") of Bankers Financial Corporation ("BFC"), the parent
corporation of Bankers Insurance Group, Inc. ("BIG"), and the Amended and
Restated Phantom Stock Plan (the "VCC Plan") of Venture Capital Corporation
("VCC"). The foregoing compensation charge is a non-recurring, non-cash item to
the Company, as all such benefits under such plans were fully vested as of
September 30, 2000 and constitute the respective obligations of BFC and VCC, not
the Company. In addition, the offset to such compensation expense is an increase
to additional paid-in capital, since the ultimate cash obligations under these
plans are that of BFC and VCC, respectively, and not of the Company.
5
<PAGE> 8
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 2. NOTE RECEIVABLE
In August, 2000 the Company loaned $500,000 to an unaffiliated customer
in connection with the termination of the outsourcing services agreement between
the Company and such unaffiliated customer and received in return a $500,000
promissory note from such entity. The note provides for monthly payments equal
to the greater of (a) ten thousand dollars ($10,000), or (b) one and one-half
percent (1-1/2%) of net written premium (as defined) issued by such customer on
or after August 1, 2000. In accordance with the terms of the note, ninety-two
and one-half percent (92-1/2%) of each monthly payment shall be applied to the
reduction of the outstanding principal balance and seven and one-half percent
(7-1/2%) shall be interest under the note. The note is collateralized by all of
the borrower's assets. The current and non-current portions of the note, which
totaled $120,000 and $380,000, respectively, at September 30, 2000, are included
in "Prepaid expenses and other assets" and "Other assets," respectively, in the
accompanying consolidated balance sheet.
NOTE 3. CONTINGENCIES
On September 28, 2000, October 25, 2000 and October 30, 2000, three
alleged shareholders of the Company, Murrel Neal, David Muti and Todd M. Speir,
filed three nearly identical lawsuits in the United States District Court for
the Middle District of Florida (Case Nos. 8:00-CV-2013-T-26F,
8:00-CV-2210-T-27B and 8:00-CV-2246-T-27F), each on behalf of a putative class
of all persons who purchased shares of the Company's Common Stock pursuant
and/or traceable to the registration statement for the Company's February 1999
initial public offering (the "IPO"). The suits name as defendants the following
parties: the Company; Geotrac of America, Inc. ("GEOTRAC"), a wholly-owned
subsidiary of the Company; Bankers Insurance Group, Inc. ("BIG"), the principal
shareholder of the Company; Venture Capital Corporation, a selling shareholder
in the IPO; all directors of the Company at the time of the IPO; and Raymond
James & Associates, Inc. and Keefe, Bruyette & Woods, Inc., individually and as
representatives of the underwriters for the IPO. The complaints allege, among
other things, that the defendants violated Sections 11, 12(a)(2) and 15 of the
Securities Act of 1933, as amended, by making certain false and misleading
statements in the roadshow presentations, registration statement and prospectus
relating to the IPO. More specifically, the complaints allege that, in
connection with the IPO, the defendants made various material
misrepresentations and/or omissions relating to (i) the Company's ability to
integrate Geotrac's flood zone determination business with the Company's
insurance outsourcing services business and (ii) actual and anticipated
synergies between the two businesses. The complaints seek unspecified damages,
including interest, and equitable relief, including a rescission remedy.
Management of the Company believes the material allegations of the complaints
are without merit and intends to vigorously defend the lawsuits. No assurances
can be given, however, with respect to the outcome of the litigation.
Bankers Insurance Company ("BIC"), a subsidiary of BIG, and Bankers
Life Insurance Company ("BLIC") and Bankers Security Insurance Company
("BSIC"), subsidiaries of BIC, have been subject to an investigation by the
Florida Department of Insurance (the "DOI"), the principal regulator of
insurance activities in the State of Florida, stemming from their use of a
private investigator to gather information on a DOI employee and the private
investigator's unauthorized use of illegal wiretaps in connection therewith. On
March 23, 2000, the Treasurer and Insurance Commissioner of the State of
Florida, as head of the DOI, filed an administrative complaint against BIC,
BLIC and BSIC based upon the results of such investigation. The administrative
complaint charges BIC, BLIC and BSIC with violating various provisions of the
Florida Insurance Code including, among other things, a provision requiring
insurance companies to have management, officers or directors that are, among
other things, trustworthy. The complaint further notifies BIC, BLIC and BSIC
that the Insurance Commissioner intends to impose such penalties or take such
other administrative actions as may be proper or appropriate under applicable
law, including possibly entering an order suspending or revoking the
certificates of authority of BIC, BLIC and BSIC to conduct business as
insurance companies in the State of Florida.
BIC, BLIC and BSIC have informed the Company that they intend to
vigorously defend against such action, but no assurances can be given as to the
outcome thereof. In the event the DOI were to enter an order suspending or
revoking the certificates of authority of BIC, BLIC and BSIC to conduct
business as insurance companies in the State of Florida, or impose other
significant penalties on any of them, it would materially adversely affect the
business and/or operations of BIG and, in turn, could result in the loss of or
material decrease in the Company's business from BIG, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
On November 19, 1999, the United States, on behalf of the Federal
Emergency Management Agency ("FEMA"), filed a civil action against BIC in the
U.S. District Court for the District of Maryland stemming from FEMA's
investigation of certain cash management and claims processing practices of BIC
in connection with its participation in the National Flood Insurance Program
("NFIP"). The complaint alleges, among other things, that BIC knowingly failed
to report and pay interest income it had earned on NFIP funds to the United
States in violation of the False Claims Act. The complaint further alleges
various common law theories, including fraud, breach of contract, unjust
enrichment and negligent misrepresentation. The complaint seeks civil penalties
of $1.08 million and actual damages of approximately $1.1 million as well as
treble, punitive and consequential damages, costs and interest. The suit is
currently administratively closed pending an appeal on the preliminary issue of
whether the controversy is subject to arbitration. BIC has informed the Company
that it intends to vigorously defend against the action, but no assurances can
be given as to the outcome thereof. However, BIG and its legal counsel have
advised the Company that an adverse judgment in this action should not have a
material adverse affect on the business and/or operations of BIC, although no
assurances can be given in this regard.
6
<PAGE> 9
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 3. CONTINGENCIES - (CONTINUED)
FEMA's investigation of certain claims processing practices of BIC in
connection with its participation in the NFIP is continuing, and BIC has
produced documentation in connection therewith. If the parties are unable to
reach agreement in these matters, the United States could amend its complaint
against BIC to add additional claims under the False Claims Act and/or various
common law and equitable theories relating to such matters. In the event such
continuing investigation or any consequence thereof materially adversely
affects the business or operations of BIC, it could result in the loss of or
material decrease in the Company's business from BIC, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is involved in various other legal actions arising in the
ordinary course of business. Management believes that the ultimate resolution
of these actions will not have a material adverse effect on the Company's
financial position, results of operations, or liquidity, although no assurances
can be given in this regard.
NOTE 4. SEGMENT INFORMATION
The following table presents summarized financial information for the
Company's reportable segments:
<TABLE>
<CAPTION>
INTERCOMPANY
OUTSOURCING FLOOD ZONE ELIMINATIONS CONSOLIDATED
SERVICES DETERMINATIONS AND OTHER TOTALS
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30,
1999 - (UNAUDITED)
Operating revenues - affiliated .... $ 9,987,895 $ 214,946 $ (230,196) $ 9,972,645
Operating revenues - unaffiliated .. 1,503,489 4,170,414 -- 5,673,903
Operating income ................... (918,929) 898,813 -- (20,116)
Identifiable assets ................ 24,826,261 25,155,030 (11,550,755) 38,430,536
THREE MONTHS ENDED SEPTEMBER 30,
2000 - (UNAUDITED)
Operating revenues - affiliated .... $ 9,959,049 $ 276,545 $ (281,295) $ 9,954,299
Operating revenues - unaffiliated .. 1,744,877 4,471,168 -- 6,216,045
Operating income (loss) ............ (1,791,038) 1,167,708 -- (623,330)
Identifiable assets ................ 29,606,136 26,926,790 (16,427,631) 40,105,295
NINE MONTHS ENDED SEPTEMBER 30,
1999- (UNAUDITED)
Operating revenues - affiliated .... $ 32,940,990 $ 409,001 $ (452,751) $ 32,897,240
Operating revenues - unaffiliated .. 5,549,683 13,782,952 -- 19,332,635
Operating income ................... 2,568,064 3,017,679 -- 5,585,743
Identifiable assets ................ 24,826,261 25,155,030 (11,550,755) 38,430,536
NINE MONTHS ENDED SEPTEMBER 30,
2000- (UNAUDITED)
Operating revenues - affiliated .... $ 29,437,938 $ 749,184 $ (778,934) $ 29,408,188
Operating revenues - unaffiliated .. 4,809,871 12,635,221 -- 17,445,092
Operating income (loss) ............ (3,548,462) 2,746,211 -- (802,251)
Identifiable assets ................ 29,606,136 26,926,790 (16,427,631) 40,105,295
</TABLE>
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain
selected unaudited historical operating results of the Company as a percentage
of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1999 2000 1999 2000
----- ----- ----- -----
<S> <C> <C> <C> <C>
REVENUES
Outsourcing services .................... 72.0% 70.6% 72.8% 71.4%
Flood zone determination services ....... 28.0 29.4 27.2 28.6
----- ----- ----- -----
Total revenues ...................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
EXPENSES
Cost of outsourcing services ............ 58.1 56.1 51.4 57.3
Cost of flood zone determination
services ............................. 12.1 12.3 11.9 12.5
Selling, general and administrative ..... 17.5 24.2 14.7 20.1
Management services from Parent ......... 3.4 3.2 3.4 3.2
Depreciation and amortization ........... 9.0 8.0 7.9 8.6
----- ----- ----- -----
Total expenses ...................... 100.1 103.8 89.3 101.7
----- ----- ----- -----
Operating income (loss) ................... (0.1) (3.8) 10.7 (1.7)
Interest income ........................... 0.4 0.4 0.6 0.4
Interest expense .......................... (1.9) (0.1) (1.5) (0.1)
----- ----- ----- -----
Income (loss) before provision (benefit)
for income taxes ......................... (1.6) (3.5) 9.8 (1.4)
Provision (benefit) for income taxes ...... (0.1) 0.0 4.2 0.2
----- ----- ----- -----
Net income (loss) ......................... (1.5)% (3.5)% 5.6% (1.6)%
===== ===== ===== =====
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
Outsourcing Services Revenues. Outsourcing services revenues increased
$161,000, or 1.4%, to $11.4 million for the three months ended September 30,
2000 from $11.3 million for the corresponding period in 1999. The increase in
outsourcing services revenues during the third quarter of 2000 was primarily
attributable to (i) revenue generated under an automobile claims processing
agreement, entered into April, 2000, with an unaffiliated customer, which
customer has subsequently defaulted on payment for services provided under the
agreement (see "Selling, General and Administrative Expenses" below for further
information), (ii) an increase in flood premium processed on behalf of the
Company's unaffiliated customers, and (iii) an increase in flood, homeowners
and commercial premium, partially offset by a decrease in automobile premium,
processed on behalf of the Company's affiliated customers.
Flood Zone Determination Services Revenues. Flood zone determination
services revenues increased $362,000, or 8.3%, to $4.7 million for the three
months ended September 30, 2000 from $4.4 million for the corresponding period
in 1999. The increase was primarily attributable to an increase in the number
of flood zone determinations processed during the three months ended September
30, 2000 as compared to the corresponding period in 1999, partially offset by a
decrease in the average selling price per flood zone determination as a result
of (i) increased pricing pressures and (ii) an increase in the number of
automated flood zone determinations processed by the Company on behalf of other
flood zone vendors at reduced rates.
Cost of Outsourcing Services. Cost of outsourcing services decreased
$12,000, or 0.1%, to $9.07 million for the three months ended September 30,
2000 from $9.08 million for the corresponding period in 1999. As a percentage
of outsourcing services revenues, cost of outsourcing services decreased to
79.4% for the three months ended September 30, 2000 from 80.7% for the
corresponding period in 1999 primarily as a result of an increase in the dollar
amount of outsourcing services revenues and a decrease in the cost of
outsourcing services during the three months ended September 30, 2000 from the
corresponding period in 1999. The decrease in the dollar amount of cost of
outsourcing services was primarily attributable to a decrease in revenue from
the Company's claims catastrophe subsidiary, which pays approximately 70% of
each dollar of revenue received to the independent adjusters who adjust the
claims on the Company's such subsidiary's behalf. The decrease in the dollar
amount of expenses from the Company's claims catastrophe subsidiary was
partially offset by increases in the Company's personnel costs due to staff
additions and the use of contract
8
<PAGE> 11
programmers to develop and staff new unaffiliated programs as well as an
increase in facilities costs due to the occupancy of the Company's new
operating and call center facility.
Cost of Flood Zone Determination Services. Cost of flood zone
determination services increased $93,000, or 4.9%, to $2.0 million for the
three months ended September 30, 2000 from $1.9 million for the corresponding
period in 1999. As a percentage of flood zone determination services revenues,
cost of flood zone determination services decreased to 42.0% for the three
months ended September 30, 2000 from 43.3% for the corresponding period in 1999
primarily as a result of (i) various production workflow changes made during
1999 that enabled the Company to increase employee productivity and reduce
operating expenses, primarily personnel related costs, and (ii) increased
utilization of a flood zone determination vendor located in India, which has
been able to perform manual flood zone determinations at costs significantly
below U.S. market rates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.2 million, or 42.8%, to $3.9 million for
the three months ended September 30, 2000 from $2.7 million for the
corresponding period in 1999. The increase in selling, general and
administrative expenses is primarily attributable to (i) the write-off of an
accounts receivable balance from an unaffiliated customer, which balance
totaled $848,000 at September 30, 2000, for claims services rendered since
April, 2000, (ii) the continued assumption of certain administrative services,
including human resource, agency accounting, cash management and legal
services, that were previously provided to the Company under the management
service agreement with BIG, and (iii) the recognition of $338,000 in additional
compensation expense (of which approximately $145,000 relates to prior quarters
in 2000 and 1999) resulting from the vesting of benefits payable to certain
current and former officers and directors of the Company under the Amended and
Completely Restated Phantom Stock Plan (the "BFC Plan") of Bankers Financial
Corporation ("BFC"), the parent corporation of BIG, and the Amended and
Restated Phantom Stock Plan (the "VCC Plan") of Venture Capital Corporation
("VCC"). The foregoing compensation charge is a non-recurring, non-cash item to
the Company, as all such benefits under such plans were fully vested as of
September 30, 2000 and constitute the respective obligations of BFC and VCC,
not the Company. In addition, the offset to such compensation expense is an
increase to additional paid-in capital, since the ultimate cash obligations
under these plans are that of BFC and VCC, respectively, and not of the
Company. See "Item 5. Other Information" for additional information.
Management Services from Parent. Management services from Parent
decreased $20,000, or 3.7%, to $516,000 for the three months ended September
30, 2000 from $536,000 for the corresponding period in 1999. This decrease was
primarily related to the continued assumption by the Company of certain
administrative services, including human resource, agency accounting, cash
management and legal services, that were previously provided to the Company
under the management service agreement with BIG. Such decrease was partially
offset by both an increase in rent expense from BIG as a result of an annual
rent escalation and an increase in the square footage being leased.
Interest Expense. Interest expense decreased $285,000, or 96.5%, to
$10,000 for the three months ended September 30, 2000 from $296,000 for the
corresponding period in 1999. This decrease was primarily related to the early
repayment of most of the Company's debt obligations during 1999 from the net
proceeds received by the Company from its initial public offering in February,
1999.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
Outsourcing Services Revenues. Outsourcing services revenues decreased
$4.6 million, or 12.0%, to $33.5 million for the nine months ended September
30, 2000 from $38.0 million for the corresponding period in 1999. The decrease
was primarily attributable to revenue generated during 1999 under an affiliated
technical support services arrangement. No revenue was generated under this
arrangement during the corresponding period in 2000. Additionally, effective
April 1, 1999, the Company amended its existing service agreements with
affiliated insurers to provide for minimum aggregate quarterly service fee
payments through December 31, 1999 with respect to certain lines of business.
The minimum service fee arrangement was established to compensate the Company
for maintaining an infrastructure to process certain lines of business of
affiliated insurers that have not grown as rapidly as originally forecasted. If
such minimum service fee requirements with respect to said lines of business
under the agreements had not been implemented as of April 1, 1999, aggregate
affiliated outsourcing services revenues, which totaled $32.5 million for the
nine months ended September 30, 1999, would have been $30.6 million in
accordance with the terms of the affiliated service agreements as in effect
prior to April 1, 1999. The amended agreement requiring such minimums expired
in December, 1999 and was not subsequently renewed.
The decrease in outsourcing services revenues was also due to a
decrease in the volume of flood and wind damage claims administered by the
Company's outsourcing operations during the nine months ended September 30,
2000 as compared to the corresponding period in 1999. During the nine months
ended September 30, 1999, the
9
<PAGE> 12
Company recognized revenues totaling approximately $4.5 million from the
administration of property damage claims resulting from Hurricane Georges,
which storm occurred in September 1998. In comparison, the Company recognized
revenues of approximately $1.7 million during the nine months ended September
30, 2000 from the administration of property damage claims resulting from
Hurricanes Floyd and Irene, which storms occurred during the fourth quarter of
1999. Additionally, a decline in the volume of automobile premium processed on
behalf of the Company's affiliated customers contributed to the decrease in
outsourcing services revenues during the nine months ended September 30, 2000.
These decreases in outsourcing services revenues were partially offset by (i)
an increase in outsourcing services revenues generated under an automobile
claims processing agreement, entered into April, 2000, with an unaffiliated
customer, which customer has subsequently defaulted on payment for services
provided under the agreement (see "Selling, General and Administrative
Expenses" below for further information), (ii) an increase in flood premium
processed on behalf of the Company's unaffiliated customers, and (iii) an
increase in flood, homeowners and commercial premium processed on behalf of the
Company's affiliated customers.
Flood Zone Determination Services Revenues. Flood zone determination
services revenues decreased $808,000, or 5.7%, to $13.4 million for the nine
months ended September 30, 2000 from $14.2 million for the corresponding period
in 1999. This decrease was primarily attributable to the termination of the
Company's "life-of-loan" insurance policy, effective April 1, 1999, under
which, prior to the termination of the policy, the Company was compensated for
performing flood zone re-determinations for certain existing customers. Prior
to the termination of the life-of-loan policy, the Company paid an insurance
premium for every flood zone determination issued which required life-of-loan
tracking. In exchange for the premium, the Company received a fixed amount for
every flood zone determination that had to be reissued as a result of a change
in the underlying flood zone classification of a property. Additionally, a
decrease in the average selling price per flood zone determination as a result
of (i) increased pricing pressures and (ii) an increase in the number of
automated flood zone determinations processed by the Company on behalf of other
flood zone vendors at reduced rates, contributed to the decrease in flood zone
determination services revenues during the nine months ended September 30,
2000. These decreases in flood zone determination services revenues were
partially offset by an increase in number of flood zone determinations
processed during the nine months ended September 30, 2000 as compared to the
corresponding period in 1999.
Cost of Outsourcing Services. Cost of outsourcing services decreased
$33,000, or 0.1%, to $26.8 million for the nine months ended September 30, 2000
from $26.9 million for the corresponding period in 1999. As a percentage of
outsourcing services revenues, however, cost of outsourcing services increased
to 80.2% for the nine months ended September 30, 2000 from 70.6% for the
corresponding period in 1999 primarily as a result of a decrease in the dollar
amount of outsourcing services revenues during the nine months ended September
30, 2000 from the corresponding period in 1999. The decrease in the dollar
amount of cost of outsourcing services was primarily attributable to a decrease
in revenue from the Company's claims catastrophe subsidiary, which pays
approximately 70% of each dollar of revenue received to the independent
adjusters who adjust the claims on the Company's such subsidiary's behalf. The
decrease in the dollar amount of expenses from the Company's claims catastrophe
subsidiary was partially offset by increases in the Company's personnel costs
due to staff additions and the use of contract programmers to develop and staff
new unaffiliated programs as well as an increase in facilities costs due to the
occupancy of the Company's new operating and call center facility.
Cost of Flood Zone Determination Services. Cost of flood zone
determination services decreased $372,000, or 6.0%, to $5.9 million for the
nine months ended September 30, 2000 from $6.2 million for the corresponding
period in 1999. As a percentage of flood zone determination services revenues,
cost of flood zone determination services decreased to 43.7% for the nine
months ended September 30, 2000 from 43.9% for the corresponding period in 1999
primarily as a result of (i) various production workflow changes made during
1999 that enabled the Company to increase employee productivity and reduce
operating expenses, primarily personnel related costs, and (ii) increased
utilization of a flood zone determination vendor, located in India, which has
been able to perform manual flood zone determinations at costs significantly
below U.S. market rates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.7 million, or 22.7%, to $9.4 million for
the nine months ended September 30, 2000 from $7.7 million for the
corresponding period in 1999. The increase in selling, general and
administrative expenses is primarily attributable to (i) the write-off of an
accounts receivable balance from an unaffiliated customer, which balance
totaled $848,000 at September 30, 2000, for claims services rendered since
April, 2000, (ii) the continued assumption of certain administrative services,
including human resource, agency accounting, cash management and legal
services, that were previously provided to the Company under the management
service agreement with BIG, and (iii) the recognition of $338,000 in additional
compensation expense (of which approximately $102,000 relates to prior quarters
in 1999) resulting from the vesting of benefits payable to certain current and
former officers and directors of the Company under the BFC Plan and the VCC
Plan. The foregoing compensation charge is a non-recurring, non-cash item to
the
10
<PAGE> 13
Company, as all such benefits under such plans were fully vested as of
September 30, 2000 and constitute the respective obligations of BFC and VCC,
not the Company. In addition, the offset to such compensation expense is an
increase to additional paid-in capital, since the ultimate cash obligations
under these plans are that of BFC and VCC, respectively, and not of the
Company. See "Item 5. Other Information" for additional information.
Management Services from Parent. Management services from Parent
decreased $239,000, or 13.8%, to $1.5 million for the nine months ended
September 30, 2000 from $1.7 million for the corresponding period in 1999. This
decrease was primarily related to the continued assumption by the Company of
certain administrative services, including human resource, agency accounting,
cash management and legal services, that were previously provided to the
Company under the management service agreement with BIG. Such decrease was
partially offset by both an increase in rent expense from BIG as a result of an
annual rent escalation and an increase in the square footage being leased.
Interest Expense. Interest expense decreased $724,000, or 93.2%, to
$53,000 for the nine months ended September 30, 2000 from $776,000 for the
corresponding period in 1999. This decrease was primarily related to the early
repayment of most of the Company's debt obligations during 1999 from the net
proceeds received by the Company from its initial public offering in February,
1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company's principal sources of liquidity
consisted of cash on-hand, cash flows from operations and available borrowings
under the Company's revolving credit facility.
In February, 1999, the Company completed an initial public offering of
3,350,000 shares of Common Stock at a price of $11 per share. Of the 3,350,000
shares sold, 1,350,000 were sold by VCC. The offering generated net proceeds
("Offering Proceeds") to the Company of approximately $19.2 million after
deducting offering expenses paid by the Company of approximately $1.3 million.
The Offering Proceeds, together with funds received from BIG from proceeds made
available to BIG by a subsidiary of VCC, were used during 1999 to repay all
obligations with BIG and its affiliates and to repay most of the Company's
third-party debt obligations.
In June, 1999, the Company entered into a revolving line of credit
agreement ("LOC") with a financial institution that provides for borrowings of
up to two times the rolling four quarter earnings before interest, taxes,
depreciation and amortization ("EBITDA"), but in no event more than
$12,000,000. The LOC bears interest at a specified percentage over LIBOR (8.38%
at September 30, 2000) based on the ratio of funded debt (as defined) to
EBITDA. Interest payments are payable monthly and the remaining unpaid
principal balance is due in full in July, 2001. The LOC is collateralized by
substantially all of the Company's assets and is subject to certain quarterly
financial covenants requiring the Company to maintain the following minimum
ratios: (i) interest bearing debt to EBITDA of not more than 2.0 to 1.0; (ii)
total liabilities to tangible net worth of not more than 1.0 to 1.0; and (iii)
fixed charge coverage (as defined) of not less than 2.5 to 1.0. As of September
30, 2000, the outstanding balance and available line of credit was $0 and
$10,421,992, respectively.
The Company believes that cash on-hand, cash flows from operations and
available borrowings under the Company's LOC facility will be sufficient to
satisfy currently anticipated working capital and capital expenditure
requirements for the next twelve months. This belief is based on the assumption
that the Company will be able to renegotiate or replace its existing LOC
facility, which is currently scheduled to expire on June 5, 2001. In the event
the Company is unable to successfully renegotiate or replace its existing LOC
facility upon acceptable terms, it may be required to seek alternative sources
of debt or equity financing. No assurances can be given, however, that such
alternative sources of debt or equity financing would be available upon
acceptable terms. The Company's inability to successfully renegotiate or
replace its existing LOC facility, or to obtain alternative debt or equity
financing, could have a material adverse effect on the Company's anticipated
liquidity needs.
Additionally, unanticipated rapid expansion, business or systems
development, or potential acquisitions may cause the Company to require
additional funds. The Company identifies and assesses, in the normal course of
business, potential acquisitions of technologies or businesses which it
believes strategically fit its business plan. The Company may enter into such
transactions should opportunities present themselves in the future.
11
<PAGE> 14
YEAR 2000 COMPLIANCE
During the first nine months of 2000, the Company continued its
remediation program related to a universal situation commonly referred to as
the "Year 2000 Problem." The Year 2000 Problem relates to the inability of
certain computer software programs to properly recognize and process
date-sensitive information relative to the Year 2000 and beyond, and the
inability of non-information technology systems to function properly when the
Year 2000 arrives. As of the date of this report, the Company has not
experienced any significant problems related to the Year 2000 Problem.
Additionally, the Company has not become aware of any significant Year 2000
issues affecting the Company's major customers or suppliers, nor has it
received any material complaints regarding Year 2000 Problems related to its
services. The Company does not anticipate any remaining costs to address
additional Year 2000 Problems will be material, although no assurances can be
given in this regard.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not entered into any transactions using derivative
financial instruments or derivative commodity instruments and believes that its
exposure to market risk associated with other financial instruments (such as
variable rate debt) are not material.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 28, 2000, October 25, 2000 and October 30, 2000, three
alleged shareholders of the Company, Murrel Neal, David Muti and Todd M. Speir,
filed three nearly identical lawsuits in the United States District Court for
the Middle District of Florida (Case Nos. 8:00-CV-2013-T-26F,
8:00-CV-2210-T-27B and 8:00-CV-2246-T-27F), each on behalf of a putative class
of all persons who purchased shares of the Company's Common Stock pursuant
and/or traceable to the registration statement for the Company's February 1999
initial public offering (the "IPO"). The suits name as defendants the following
parties: the Company; Geotrac of America, Inc. ("GEOTRAC"), a wholly-owned
subsidiary of the Company; BIG; VCC; all directors of the Company at the time
of the IPO; and Raymond James & Associates, Inc. and Keefe, Bruyette & Woods,
Inc., individually and as representatives of the underwriters for the IPO. The
complaints allege, among other things, that the defendants violated Sections
11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, by making
certain false and misleading statements in the roadshow presentations,
registration statement and prospectus relating to the IPO. More specifically,
the complaints allege that, in connection with the IPO, the defendants made
various material misrepresentations and/or omissions relating to (i) the
Company's ability to integrate Geotrac's flood zone determination business with
the Company's insurance outsourcing services business and (ii) actual and
anticipated synergies between the two businesses. The complaints seek
unspecified damages, including interest, and equitable relief, including a
rescission remedy. Management of the Company believes the material allegations
of the complaints are without merit and intends to vigorously defend the
lawsuits. No assurances can be given, however, with respect to the outcome of
the litigation.
Except as set forth in the preceding paragraph, there have been no
material changes to the disclosure set forth under the caption "Item 3. Legal
Proceedings" in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
12
<PAGE> 15
ITEM 5. OTHER INFORMATION
On August 31, 2000, after exploring various strategic alternatives for
the Company's flood zone determination business for approximately ten months
and rejecting a final proposal to acquire the Company's Geotrac subsidiary, the
Company ceased all further efforts to pursue the possible disposition of
Geotrac or its flood zone determination business. The Company originally
announced its intention to pursue strategic alternatives for Geotrac and its
flood zone determination business in a press release dated October 28, 1999.
Effective September 30, 2000, the BFC and VCC Plans were amended to
provide for, among other things, immediate vesting of benefits payable
thereunder to certain current and former officers and directors of the Company.
Accordingly, as of September 30, 2000, the total discounted and non-discounted
benefits payable under these plans, which have accrued since February 11, 1999,
the date of the Company's initial public offering (the "IPO Date"), totaled
$327,000 and $894,000, respectively, for the BFC Plan and $12,000 and $43,000,
respectively, for the VCC Plan. Benefits under each of such plans generally are
payable in 120 equal installments beginning at age 60. Although resulting in
compensation expense (on a discounted basis) to the Company, all of such
benefits under such plans were granted on or before the IPO Date and constitute
the respective obligations of BFC and VCC, not the Company. The benefits
described herein exclude amounts vested prior to the IPO Date and/or allocable
to services provided to BIG or its affiliated entities (other than the Company
or its subsidiaries) since the IPO Date.
The aggregate amount (on a non-discounted basis) in benefits payable
to each of the Company's current and former executive officers and directors of
the Company under the BFC Plan and the VCC Plan, respectively, and which have
accrued from the IPO Date through September 30, 2000, are as follows: David K.
Meehan, $0 and $0; David M. Howard, $247,515 and $25,523; Robert G. Gantley,
$217,583 and $0; Christopher P. Breakiron, $0 and $0; Daniel J. White, $0 and
$0; Kathleen M. Batson, $43,348 and $6,160; John A. Grant, Jr., $154,100 and
$9,210; William D. Hussey, $100,000 and $0; E. Ray Solomon, $100,000 and $0;
and Alejandro M. Sanchez, $0 and $0. The foregoing benefits exclude amounts
vested prior to the IPO Date and/or allocable to services provided to BIG or
its affiliated entities (other than the Company or its subsidiaries) since the
IPO Date.
Except as set forth below, since the IPO Date, no officers or directors
of the Company have been eligible to receive additional grants under such
phantom stock plans or have been subject to future allocations of profits or
losses with respect thereto. In addition, except as set forth below, all current
officers and directors of the Company were fully vested, as of September 30,
2000, in all benefits under such plans. Notwithstanding the foregoing, Robert G.
Menke, a director of the Company, and David K. Meehan, Chairman of the Board of
the Company, will continue to be eligible to receive grants, vest in benefits
received and share in profits and losses under such plans in their capacity as
officers and directors of BIG and its affiliated entities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
EXHIBIT NO. DESCRIPTION
10.1 Insurance Administration Services Agreement
Termination and Interim Services Addendum, effective
as of August 1, 2000, by and between Insurance
Management Solutions, Inc., International
Catastrophe Insurance Managers, LLC and Clarendon
National Insurance Company, including all schedules
and exhibits thereto
27.1 Financial Data Schedule (for SEC use only)
b) Reports on Form 8-K
None
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 17, 2000 INSURANCE MANAGEMENT SOLUTIONS
GROUP, INC.
(Registrant)
By: /s/ DAVID M. HOWARD
----------------------------------
David M. Howard
President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ CHRISTOPHER P. BREAKIRON
----------------------------------
Christopher P. Breakiron
Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
14
<PAGE> 17
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.1 Insurance Administration Services Agreement Termination and Interim
Services Addendum, effective as of August 1, 2000, by and between
Insurance Management Solutions, Inc., International Catastrophe
Insurance Managers, LLC and Clarendon National Insurance Company,
including all schedules and exhibits thereto
27.1 Financial Data Schedule (for SEC use only)
15
