AMERICAN COUNTRY HOLDINGS INC, 10-Q, 2000-05-15

AMERICAN COUNTRY HOLDINGS INC
10-Q, 2000-05-15
FIRE, MARINE & CASUALTY INSURANCE

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

/x/	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934

For the quarterly period ended March 31, 2000

/ /	Transition Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934

For the transition period from to

Commission File Number 0-22922

AMERICAN COUNTRY HOLDINGS INC.
(Exact Name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		06-0995978 (I.R.S. Employer Identification No.)
222 North LaSalle Street, Chicago, Illinois (Address of principal executive office)		60601-1105 (Zip Code)

Registrant's telephone number, including area code: (312) 456-2000

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 / /

The aggregate number of shares of the Registrant's Common Stock, $.01 par value, outstanding May 9, 2000 was 8,056,232.

AMERICAN COUNTRY HOLDINGS INC.
INDEX

			Page
PART I—FINANCIAL INFORMATION
	Item 1.	Consolidated Financial Statements
		Consolidated Balance Sheets at March 31, 2000, (Unaudited) and December 31, 1999	3
		Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2000 and 1999	4
		Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2000 and 1999	5
		Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2000 and March 31, 1999	6
		Notes to Consolidated Financial Statements (Unaudited)	7
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
PART II—OTHER INFORMATION
	Item 1.	Legal Proceedings	15
	Item 2.	Changes in Securities	15
	Item 3.	Defaults upon Senior Securites	15
	Item 4.	Submission of Matters to a Vote of Security Holders	15
	Item 5.	Other Information	15
	Item 6.	Exhibits and Reports on Form 8-K	15
		Signature	16

AMERICAN COUNTRY HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

	(Unaudited)
	March 31, 2000			December 31, 1999
ASSETS
Investments:
Available-for-sale
Fixed maturities—At fair value (amortized cost: 2000—$129,392 ; 1999—$129,526)	$	126,456		$	126,297
Equity securities—At fair value (cost: 2000—$353; 1999—$353)		368			367
Collateral loans (at amortized cost, which approximates fair value)		2,433			2,721
Total investments		129,257			129,385
Cash and cash equivalents		6,888			4,973
Premiums receivable (net of allowance: 2000—$374; 1999—$293)		35,371			13,048
Reinsurance recoverable		12,404			15,233
Deferred income taxes		6,435			6,535
Deferred policy acquisition costs		5,898			3,251
Accrued investment income		1,932			1,772
Property and equipment		790			832
Income taxes recoverable		642			334
Other assets		521			929

Total assets	$	200,138		$	176,292

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses	$	103,637		$	104,493
Unearned premiums		42,750			18,728
Note payable		11,150			11,150
Accrued expenses		3,093			3,188
Drafts outstanding		2,070			2,023

Total liabilities		162,700			139,582
Commitments and contingent liabilities		0
Stockholders' equity:
Common stock—$.01 par value: Authorized—60,000,000 shares Issued and outstanding—shares: 2000—8,026,210; 1999—8,011,303		80			80
Preferred stock: Authorized—2,000,000 shares; issued and outstanding—0 shares		—			—
Additional paid-in capital		37,265			37,104
Accumulated other comprehensive income		(1,591	)		(1,784	)
Retained earnings		1,684			1,310

Total stockholders' equity		37,438			36,710

	$	200,138		$	176,292

See Notes to the Consolidated Financial Statements.

AMERICAN COUNTRY HOLDINGS INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

	Three Months Ended March 31,
	2000			1999
REVENUES:
Premiums earned		17,743		$	14,552
Net investment income		2,038			1,836
Net realized gains (losses) on investments		(150	)		365
Other income		134			66

Total revenues		19,765			16,819
LOSSES AND EXPENSES:
Losses and loss adjustment expenses		15,929			13,390
Amortization of deferred policy acquisition costs		2,641			2,706
Administrative and general expenses		536			153

Total losses and expenses		19,106			16,249

Operating Income		659			570

Interest expense		165			133

Income before income taxes		494			437
Provision for income tax		95			(88	)

Net income	$	399		$	525

Basic and dilutive earnings per share	$	0.05		$	0.07

See Notes to the Consolidated Financial Statements

AMERICAN COUNTRY HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

	Three Months Ended March 31,
	2000			1999
Net cash provided by operating activities	$	1,568		$	2
INVESTING ACTIVITIES
Fixed maturities—available-for-sale:
Purchases		(20,483	)		(56,038	)
Sales		18,422			51,463
Maturities, calls, and prepayments		2,021			2,186
Sale or maturity of other investments		288			60
Purchase of property and equipment		(36	)		(472	)

Net cash provided (used) by investing activities		212			(2,801	)
FINANCING ACTIVITIES
Issuance of common stock		135			—

Net cash provided by financing activities		135			—

Net increase (decrease) in cash		1,915			(2,799	)
Cash at beginning of period		4,973			10,353

Cash at end of period		6,888		$	7,554

See Notes to the Consolidated Financial Statements

AMERICAN COUNTRY HOLDINGS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(IN THOUSANDS)

	Three Months Ended March 31,
	2000			1999
Net income	$	399		$	525
Other comprehensive income:
Unrealized gain (loss) on investments—net of reclassification adjustments		293			(2,271	)
Deferred income tax (expense) benefit on changes		(100	)		772
Other		0			0

Other comprehensive income (loss)		193			(1,499	)

Comprehensive income (loss)	$	592		$	(974	)

See Notes to the Consolidated Financial Statements

AMERICAN COUNTRY HOLDINGS INC. PART I
FINANCIAL INFORMATION

(See Financial Statements and Exhibits Attached)

Notes to the Consolidated Financial Statements

(Unaudited)

A. NATURE OF OPERATIONS

American Country Holdings Inc. (the "Company") is an insurance holding company which operates through its direct subsidiaries American Country Insurance Company ("American Country"), American Country Financial Services Corp. ("Financial Services")and American Country Professional Services Corp. ("Professional Services"). American Country is an Illinois domestic property and casualty insurance company that specializes in the underwriting and marketing of commercial property and casualty insurance for a focused book of business. American Country concentrates on types of insurance in which it has expertise: transportation, hospitality and other commercial lines. American Country also wrote a nominal amount of personal lines, automobile and homeowners insurance prior to exiting this market in 1999. Financial Services operates principally as a premium finance company and also provides secured loans for certain of American Country's larger customers. Professional Services is a third-party administrator claims processing service for American Country's insurance customers, and on October 1, 1999 began offering secured loans to American Country's larger customers.

B. ACCOUNTING PRINCIPLES

The accompanying financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying financial statements should be read in conjunction with the consolidated financial statements of the Company included in the Company's 1999 Annual Report on Form 10-K filed on March 30, 2000.

Operating results for the three-month period ended March 31, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000.

Earnings per share information is presented on the basis of weighted average shares outstanding for the period, restated for a one-for-four reverse stock split effective at the close of business on May 8, 2000.

C. CAPITAL STOCK

No dividends have been declared or paid by the Company during the periods presented in the accompanying financial statements. On May 8, 2000, the Company effected a one-for-four reverse stock split. No fractional shares were issued as a result of the reverse stock split. Issued and outstanding common stock after the reverse stock split represents approximately 13.37% of the total authorized number of shares. The number of common shares issued and outstanding have been restated for all periods presented. At March 31, 2000, the Company had 2,054,129 warrants outstanding. The warrants allow each warrant holder to purchase .5475 shares of Common Stock at a price of $7.32 per share through August 31, 2000.

D. STOCK OPTION PLAN

The Company has established a Stock Option Plan (the "Plan"), under which, as amended and restated, options to purchase up to a total of 750,000 shares of common stock may be granted to officers and other key employees. Stock options granted under this Plan, which may be either incentive stock options or nonqualified stock options for federal income tax purposes, expire up to ten years after date of grant and become exercisable over a three year period. Employees who have left the Company have 90 days to exercise their options. In December 1996, the stockholders agreed to an amendment to the Plan, whereby in the event of a sale of the assets of the Company, all options outstanding would become immediately exercisable without regard to any vesting provisions. As a result of the reverse stock split effective May 8, 2000, each outstanding option evidences the right to purchase twenty-five percent (25%) of the shares of Common Stock previously covered thereby, and the exercise price per share is four times the previous exercise price. At March 31, 2000, the Company had outstanding options to purchase 1,706,893 shares with exercise prices ranging from $0.60 per share to $3.75 per share. Effective with the reverse stock split, the Company has outstanding options to purchase 426,723 shares with exercise prices ranging from $2.40 per share to $15.00 per share.

E. REINSURANCE

The components of the net reinsurance recoverable balances in the accompanying balance sheets were as follows:

	March 31, 2000		December 31, 1999
Ceded paid losses recoverable	$	1,360	$	1,106
Ceded unpaid losses and loss adjustment expenses ("LAE")		10,228		13,141
Ceded unearned premiums	$	816		986

Total	$	12,404	$	15,233

The reinsurance ceded components of the amounts relating to the accompanying statement of income were as follows:

	Three months ended March 31,
	2000		1999
	(In thousands)
Ceded premiums earned	$	1,813	$	1,399
Ceded incurred losses		1,420		2,844
Ceded incurred LAE		443		287

The effect of reinsurance on premiums written and earned for the three months ended March 31, 2000 and 1999, was as follows:

	Three months ended March 31,
	2000				1999
	(In Thousands)
	Premiums				Premiums
	Written		Earned		Written			Earned
Direct	43,387		19,147		$	40,925		$	15,282
Assumed	191		409			663			669
Ceded	(1,643	)	(1,813	)		(1,678	)		(1,399	)

Net	41,935		17,743		$	39,910		$	14,552

F. BUSINESS SEGMENTS

The Company through American Country is engaged primarily as a property and casualty insurance carrier, providing automobile liability and physical damage, workers' compensation, multiple peril liability and property damage, among other coverages in three key niche markets; transportation, hospitality and other commercial lines. Prior to 1999, American Country also wrote a nominal amount of personal lines insurance, and is now in the process of running-off that line. In addition, the Company through other subsidiaries provides premium and other financing services through secured loans to certain larger customers. All revenues are derived from markets in the United States.

Segment revenues for the three months ended March 31, 2000 and 1999 were (in thousands):

	2000		1999
SEGMENT REVENUES
Transportation	$	13,018	$	9,376
Hospitality		1,973		1,576
Other commercial		4,222		5,329
Personal lines		29		69
Other		134		431

Total segment revenues		19,376		16,782
Other reconciling items:
Investment and other income not attributable to segments		389		37

Total revenues		19,765		16,819

Segment operating profit for the three months ended March 31, 2000 and 1999 were (in thousands):

	2000			1999
SEGMENT OPERATING PROFIT
Transportation	$	1,926		$	2,923
Hospitality		(513	)		528
Other commercial		(944	)		(2,790	)
Personal lines		(24	)		387
Other		72			66

Total segment operating profit		516			1,114

Other reconciling items:
Investment and other income not attributable to segments		389			37
General corporate expenses		(202	)		(185	)
Other expenses, net		(44	)		(396	)

Total adjustments		143			(544	)

Total operating profit	$	659		$	570

Asset information by reportable segment is not reported since the Company does not produce such information internally. Segment operating profit is net of depreciation expense of $81,000 and $75,000 for the three months ended March 31, 2000 and 1999, respectively.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Report.

Overview

American Country is an Illinois domestic property and casualty insurance company that specializes in the underwriting and marketing of commercial property and casualty insurance for a focused book of business. American Country concentrates on types of insurance in which it has expertise: transportation, hospitality and other commercial lines. American Country also wrote a nominal amount of personal lines, automobile and homeowners insurance prior to exiting the line in 1999. Financial Services operates principally as a premium finance company and also provides secured loans for certain of American Country's larger customers. Professional Services is a third-party administrator claims processing service for American Country's insurance customers.

THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999

Overall premium revenues increased 21.9% in 2000 to $17.7 million from $14.6 million for the same period in 1999.

The following table sets forth the net premiums earned by the principal lines of insurance underwritten by American Country for the periods indicated and the dollar amount and percentage of change therein from period to period:

Net Premiums Earned

	Three Months Ended March 31,				Increase (Decrease) from 1999
	2000		1999		Amount			Percent
	(in thousands)
Transportation lines	$	11,036	$	8,638	$	2,398		27.7	%
Hospitality lines		1,908		1,367		541		39.6
Commercial lines		4,794		4,521		273		6.0
Personal lines		5		26		(21	)	(80.8	)

Totals	$	17,743	$	14,552	$	3,191		21.9	%

Compared to the first quarter in 1999, net premiums earned from transportation lines, which consists of taxi and limousine liability and physical damage insurance, increased by 27.7% to $11.0 million. Nearly all of the insurance business written by American Country for transportation lines generated premium revenue increases, especially business generated outside its historical region of the Chicago metropolitan area. This geographical expansion was accomplished primarily by underwriting programs in the states of Connecticut and New York.

Premium revenues for hospitality lines increased 39.6% to approximately $1.9 million as compared to $1.4 million for 1999. This increase is attributable to the growth in the number of policies written for multiple peril package and other liability products.

Net premiums earned from commercial lines increased 6.0% to $4.8 million from $4.5 million in 1999, as a result of the increased pricing industry-wide for this line. As a result of these increases, the net premiums earned increased although the number of insured risks decreased slightly. The decrease in the number of insured risks is due to more conservative underwriting.

The decrease of 80.8% in premiums earned from personal lines reflects American Country's exit from personal lines. American Country remains responsible for the payment of all claims incurred while the personal lines policies were in effect. Most of American Country's personal lines policies are covered by a reinsurance agreement with Ohio Casualty Insurance Company under which Ohio Casualty reinsures one hundred percent of the net liability of American Country for losses occurring on or after January 1, 1998 with respect to American Country's personal lines policies that are reinsured. The reinsurance remains in full force and effect until the settlement of all liabilities under the policies reinsured by Ohio Casualty. In the event Ohio Casualty breaches or is in default with respect to any of its obligations under the agreement, American Country remains obligated and liable with respect to the reinsured policies.

Investment income (net investment income and net realized gains on investments) decreased approximately 13.6%, to $1.9 million as compared to $2.2 million for the same period in 1999. Interest income increased by $202,000 during the first quarter of 2000, resulting in total interest income earned of $2.0 million. Realized losses amounted to $150,000 for the first quarter of 2000 compared to gains of $365,000 during the same period in 1999.

Other income, which consists of interest and fees earned on the Company's financing activities increased 103% in the first quarter of 2000 to $134,000 compared to $66,000 in 1999. The increase is attributable to the higher volume of collateralized finance contracts entered into during the fourth quarter of 1999. Losses and loss adjustment expenses (LAE) increased 19.0% or $2.5 million for the 2000 period, to $15.9 million during 2000 from $13.4 million for 1999, resulting in a loss ratio of 89.8% for 2000 compared to 92.0% for 1999, as a result of a substantial decrease in the loss ratios for both transportation and commercial lines.

The loss ratio for transportation lines for 2000 increased to 83.9% compared to 57.8% for 1999. This increase in the loss ratio was primarily due to an increase in the frequency of claims.

The loss ratio for hospitality lines increased to 115.2% compared to 53.8% in the same period in 1999, as a result of significantly higher losses for multiple peril package policies. These losses are primarily the result of weather-related property damage claims, and one severe fire-related loss.

Commercial lines experienced a significant decrease in both its losses and the resulting loss ratio during the 2000 quarter. The decrease, especially for workers' compensation and commercial multiple peril business, resulted in a loss ratio of 115.1% compared to 161.0% during 1999. This decrease is primarily attributable to poor weather conditions in American Country's commercial underwriting territories during the first quarter of 1999 that did not recur in 2000. In addition, American Country posted additional reserves of $3.5 million for this line in the fourth quarter of 1999. As a result, the current year loss ratio has not been materially impacted by adverse development, which had been the case in 1999.

The increase in the personal lines loss and loss adjustment expense is attributable to the reduced premium volume, and the small number of claims still remaining, that resulted from American Country's exit from the personal lines market.

Amortization of acquisition costs reflects a net decrease during the 2000 period of $65,000, which is the result of a reduction in the amount of expenses subject to deferral and subsequent amortization. This decrease was somewhat offset by commission expense incurred on particular transportation products which had not been subject to these costs in prior periods.

General and administrative costs, excluding interest on long-term debt, increased $383,000 in the 2000 period, primarily the result of increased operating costs not subject to deferral as acquisition costs.

Liquidity and Capital Resources

The Company is a holding company, receiving cash principally through fees and dividends from its subsidiaries and borrowings. American Country, the principal subsidiary of the Company, is the only subsidiary of the Company subject to restrictions and regulatory approval on fees and dividends. The ability of insurance and reinsurance companies to underwrite insurance and reinsurance is based on maintaining liquidity and capital resources sufficient to pay claims and expenses as they become due. The primary sources of liquidity for the Company's subsidiaries are funds generated from insurance premiums, investment income, commission and fee income, capital contributions from the Company and proceeds from sales and maturities of portfolio investments. The principal expenditures are for payment of losses and LAE, operating expenses, commissions and dividends to shareholders.

On October 5, 1999, the Board of Directors approved a loan proposal from Northern Trust wherein its line of credit was converted to an $8.0 million four year term loan and a $7.0 million 364 day revolving credit. Under the $8.0 million term loan, the first installment of $2.0 million is due April 30, 2001. The interest rate on the term loan may be based upon LIBOR + 1%, the New York Federal Funds rate +1%, or the prime rate minus 1%.

The $7.0 million revolving credit agreement has a maturity of 364 days, with a commitment fee of .25% per annum on the unused portion.

The revolving credit agreement contains various debt covenants including conditions for prepayment and certain financial covenants, the most restrictive covenant being the ratio of debt to equity. American Country was in compliance with all covenants as of March 31, 2000.

At March 31, 2000, the Company's total assets of $200 million were comprised of the following: Cash and investments, 68.0%; premiums receivable, 17.7%; reinsurance recoverables, 6.2%; deferred expenses (policy acquisition costs and deferred taxes) 6.2%; fixed assets, .32%; and other assets, 1.58%.

The Company's subsidiaries seek to maintain liquid operating positions and follow investment guidelines and state regulations for investments that are intended to provide for an acceptable return on investment while preserving capital, maintaining sufficient liquidity to meet their obligations and, as to the Company's insurance subsidiary, maintaining a sufficient margin of capital and surplus to ensure its unimpaired ability to write insurance and assume reinsurance.

The following table provides a profile of the Company's fixed maturities investment portfolio by rating at March 31, 2000:

S&P/Moody's Rating(1)	Fair Value		Percent of Total
AAA/Aaa (including US Treasuries of $5,224)	$	70,734	55.9	%
AA/Aa		15,004	11.9	%
A/A		27,271	21.6	%
BBB/Ba		10,681	8.4	%
All other		2,766	2.2	%

Total	$	126,456	100.0	%

(1): Ratings are as assigned primarily by Standard & Poor's Corporation, with remaining ratings as assigned by Moody's Investors Service Inc.

Cash flow provided by operations for the quarter ended March 31, was $1.57 million (the direct result of the large portion of transportation revenues booked during the quarter) as compared to $2,000 same period in 1999. Such amounts were adequate to meet all obligations during the periods. The increase in cash flow provided for the quarter ended March 31, 2000 as compared to the 1999 three-month period is attributable to the increase in premium volume for the first quarter of 2000.

Year 2000

The Company has successfully managed the transition from one century to the next. Although some internal systems and third parties experienced minor problems, these were quickly resolved and had no significant effect on the Company's clients, businesses or results of operations. The following information is provided in order to update prior disclosures with respect to this matter.

Early in 1999, the Company completed Year 2000 renovation and validation for all of its critical information technology systems, including those provided by third parties. The Company also completed during 1999, the necessary remediation of other infrastructure items or developed contingency plans to allow critical functions to continue in the event of infrastructure problems.

The estimated total cost for the Company's Year 2000 compliance is $66,000. This estimate includes the cost of software modification and/or replacement as well as hardware and software implementation and testing.

Although no problems that have had or are expected to have a material effect of the Company have become apparent, the Company continues to monitor its own systems and those of third parties as they perform required functions for the first time in Year 2000. It is also possible that as yet undetected Year 2000 problems with the systems of important vendors, insurance agents and brokers and clients may emerge as the year progresses, and the Company continues to monitor for issues of this type.

Forward-Looking Statements

The Company cautions readers regarding certain forward-looking statements contained in the foregoing and elsewhere and in any other statements made by, or on behalf of, the Company, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical facts. In particular, statements using verbs such as "expect," "intend," "plan," "anticipate," "believe" or similar words generally involve forward-looking statements. Forward-looking statements also include but may not be limited to, statements relating to future plans, targets and objectives, financial results, cyclical industry conditions, government and regulatory policies, the uncertainties of the reserving process and the competitive environment in which the Company operates.

Forward-looking statements are based upon estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond the Company's control and subject to change. These uncertainties can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments, some of which may be national in scope, such as general economic conditions and interest rates. Some of these events or developments may be related to the insurance industry generally, such as pricing competition, regulatory developments and industry consolidation. Others may relate to the Company specifically, such as credit, volatility and other risks associated with the Company's investment portfolio, and other factors. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the SEC, including Exhibit 99 to the Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1999. The Company disclaims any obligation to update forward-looking information.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

There are no pending material legal proceedings, other than as described in the following paragraph, to which the Company or its subsidiaries is a party or of which any of the properties of the Company or its subsidiaries is subject, except for claims arising in the ordinary course of business. Most of these proceedings involve claims under insurance policies issued by American Country. These proceedings are considered by American Country in estimating the reserves for losses and loss adjustment expenses. In the opinion of management, the ultimate resolution of such litigation will not have a material effect on the financial condition of the Company.

On May 20, 1999, Frontier Insurance Group, Inc., which owns approximately 25% of the outstanding shares of the Company, filed a purported shareholder derivative action in Delaware Chancery Court against the Company's directors and the Company itself as a nominal defendant. The complaint seeks a declaration that certain amendments to the Company's Stock Option Plan, which were approved at the Company's Annual Meeting on May 18, 1999 are void or, alternatively, should be rescinded. The complaint further challenges the grant of options to purchase 1.1 million shares (now 275,000 due to the reverse stock split), which represents approximately 3% of the shares outstanding, to certain of its officers and directors. The individual defendants have advised the Company that they believe that they have substantial defenses to the claims asserted by Frontier Insurance Group, Inc. In the opinion of management, the ultimate resolution of such litigation will not have a material effect on the financial condition of the Company.

Item 2. Changes in Securities

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Submission of Matters to Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

Exhibits:

3.1: Amended Certificate of Incorporation
3.2: Amended and Restated Bylaws
(27): Financial Data Schedule

b.: Reports on Form 8-K:

None.

SIGNATURE

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.

Date: May 15, 2000

		AMERICAN COUNTRY HOLDINGS INC. (Registrant)
		By:		/s/ KARLA M. VIOLETTO Treasurer, Vice President, Chief Financial Officer and Principal Accounting Officer

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