UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file number 0-6869
FORTUNE NATIONAL CORPORATION
(Exact name of small business issuer as specified in its charter)
State of Incorporation: IRS Employer Id.:
Pennsylvania 25-1229620
Address of Principal Executive Office:
10555 Richmond Avenue
Houston, Texas 77042
Issuer's telephone number: (713) 974-2242
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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. [x] Yes [ ] No.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 14, 1996
Common Stock, Par Value $1.00 2,616,984
This Form 10-QSB contains a total of 17 pages, including any
exhibits.<PAGE>
FORTUNE NATIONAL CORPORATION AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page No.
Part I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet - June 30, 1996 (Unaudited) 3
Condensed Consolidated Statements of
Operations - Six Months Ended
June 30, 1996 and 1995 (Unaudited) 5
Condensed Consolidated Statements of
Operations - Three Months Ended
June 30, 1996 and 1995 (Unaudited) 6
Condensed Consolidated Statements of
Cash Flows - Six Months Ended
June 30, 1996 and 1995 (Unaudited) 7
Notes to Condensed Consolidated
Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Part II. Other Information:
Item 6. Exhibit 27-Financial Data Schedule 17<PAGE>
PART I. ITEM 1. FINANCIAL INFORMATION
FORTUNE NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
ASSETS
1996
Investments:
Fixed maturities available for sale $ 27,213,009
Equity securities (at market) 14,212
Mortgage loans 2,890,310
Real estate 1,484,313
Policy loans 6,326,702
Short-term investments 592,533
----------
Total investments 38,521,079
Accrued investment income 558,139
Reinsurance receivable 57,198,313
Accounts receivable (less allowance
for uncollectible accounts of
$82,961) 199,850
Deferred policy acquisition costs 1,714,582
Property and equipment
(less accumulated depreciation of
$563,479) 104,977
Costs in excess of net assets of
acquired business (less accumulated
amortization of $1,759,395) 3,024,533
Other assets 1,261,491
------------
$102,582,964
============
See accompanying notes to consolidated financial statements.<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
1996
Liabilities:
Policy liabilities:
Future policy benefits $ 87,744,132
Contract claims 680,689
-----------
88,424,821
Other policyholders' funds 1,988,737
Deferred tax liability 1,975,950
Deferred gain on reinsurance 858,266
Note payable 1,187,500
Other liabilities 867,841
-----------
Total liabilities 95,303,115
-----------
Minority interest 1,688,995
-----------
Preferred stock of subsidiary 1,850,000
-----------
Stockholders' equity:
Common stock, par value $1 per share,
authorized 4,000,000 shares,
issued 2,859,768 shares 2,859,768
Additional paid-in capital 5,098,262
Accumulated deficit (4,351,220)
Treasury stock, at cost, 242,784 shares (158,385)
Net unrealized investment gains, net
of taxes of $34,326 292,429
-----------
Total stockholders' equity 5,590,854
-----------
$102,582,964
===========
See accompanying notes to consolidated financial statements.<PAGE>
FORTUNE NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
Revenues:
Premiums and other considerations $ 1,203,478 990,745
Net investment income 798,760 683,659
Net realized investment gains 1,942 5,859
Reinsurance expense allowance 899,062 971,272
Amortization of deferred gain on
reinsurance 28,092 183,244
Other income 31,135 57,993
---------- ----------
Total revenues 2,962,469 2,892,772
---------- ----------
Benefits and expenses:
Death benefits 429,819 208,138
Other benefits 892,255 912,693
Commissions and general expenses 1,270,105 1,346,307
Interest expense 58,256 101,423
Amortization of deferred policy
acquisition costs 64,475 56,739
Amortization of costs in excess of net
acquired business 106,771 106,774
---------- ----------
Total benefits and expenses 2,821,681 2,732,074
---------- ----------
Income before federal income tax
expense and minority interest in
losses (earnings) of subsidiary 140,788 160,698
Federal income tax expense (benefit)
Current 19,784 1,018,864
Deferred (54,990) (1,038,019)
---------- ----------
Income before minority interest
in earnings of subsidiary 175,994 179,853
Preferred dividends of subsidiary 61,841 63,312
Minority interest in losses (earnings)
of subsidiary (90,868) (85,219)
---------- ----------
Net income $ 23,285 31,322
========== ==========
Net income per common share: $ .01 .01
========== ==========
See accompanying notes to consolidated financial statements.<PAGE>
FORTUNE NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
Revenues:
Premiums and other considerations $ 857,589 544,251
Net investment income 491,293 315,393
Net realized investment gains (losses) 1,428 (388)
Reinsurance expense allowance 444,273 497,119
Amortization of deferred gain (loss)
on reinsurance 10,410 105,924
Other income 17,062 43,744
--------- ---------
Total revenues 1,822,055 1,506,043
--------- ---------
Benefits and expenses:
Death benefits 301,200 66,426
Other benefits 609,763 572,525
Commissions and general expenses 704,823 616,583
Interest expense 29,351 36,788
Amortization of deferred policy
acquisition costs 37,422 28,998
Amortization of costs in excess of net
acquired business 53,387 53,387
--------- ---------
Total benefits and expenses 1,735,946 1,374,707
--------- ---------
Income before federal income tax
expense and minority interest in losses
of subsidiary 86,109 131,336
Federal income tax expense
Current 9,784 8,288
Deferred (435) 177,782
--------- ---------
Loss before minority interest in losses
of subsidiary 76,760 (54,734)
Preferred dividends of subsidiary 30,184 32,393
Minority interest in losses of
subsidiary (37,826) 9,943
--------- ---------
Net income (loss) $ 8,750 (77,184)
--------- ---------
Net income (loss) per common share: $ -- (.03)
--------- ---------
See accompanying notes to consolidated financial statements.<PAGE>
FORTUNE NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
INCREASE (DECREASE) IN CASH (UNAUDITED)
1996 1995
Cash flows from operating activities:
Net income from operations $ 23,285 31,322
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 183,174 (2,511)
Realized gains on investments (1,942) (5,859)
Deferred federal income tax benefit (54,988) (1,038,018)
Decrease in reinsurance receivable 1,104,807 917,326
Decrease in accrued investment income (332,078) 56,221
Increase in accounts receivable (69,832) (160,994)
Decrease (increase) in other assets (946,509) 3,221
Increase (decrease) in future policy
benefits 67,181 (63,057)
Increase in contract claim liability (248,705) (73,718)
Increase (decrease) in other
policyholders' funds liability (134,338) 24,526
Increase in other liabilities 166,766 307,106
Increase in minority interest 55,584 49,097
----------- -----------
Net cash provided by operating activities (187,595) 44,662
----------- -----------
Cash flows from investing activities:
Proceeds from sales of investments and
principal repayments on mortgage loans 2,742,132 1,074,964
Purchases of investments available for
sale (21,910,404) (3,725,420)
Net decrease in policy loans 402,000 125,416
Net decrease in short-term investments 450,728 11,436,715
Purchase of property and equipment (62,767) (24,746)
Purchase of subsidiary, net of cash acquired -- (1,952,300)
Assumption reinsurance acquisition,
net of cash acquired 19,371,962 --
----------- -----------
Net cash provided by investing activities 993,651 6,934,629
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of note payable -- 1,500,000
Principal payments on notes payable (125,000) (8,362,500)
Deposits on policy contracts 573,435 641,340
Withdrawals from policy contracts (1,380,362) (1,143,417)
----------- -----------
Net cash used in financing activities (931,927) (7,364,577)
----------- -----------
Net decrease in cash (125,871) (385,286)
Cash at beginning of period 125,871 385,286
----------- -----------
Cash at end of period $ -- --
=========== ===========
See accompanying notes to consolidated financial statements.<PAGE>
FORTUNE NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 30, 1996 and
the condensed consolidated statements of operations and cash
flows for the six month periods ended June 30, 1996 and 1995,
have been prepared by Fortune National Corporation (the
"Company"), without audit. In the opinion of management, all
adjustments (which, except as may be noted below, include only
normal recurring adjustments) necessary to present fairly the
financial position, results of operations, and changes in cash
flows at June 30, 1996 and for all periods presented have been
made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements
and notes thereto included in the Company's December 31, 1995
Annual Report to Stockholders. The results of operations for the
six month periods ended June 30, 1996 and 1995 are not
necessarily indicative of the operating results for the full
year.
2. EARNINGS PER SHARE
Earnings per common share is computed by dividing net income
(loss) by the weighted average number of shares of common stock
outstanding (2,616,984 at June 30, 1996 and June 30, 1995).
3. STOCKHOLDERS' EQUITY
During the six months ended June 30, 1996, stockholders' equity
changed for the following items: Reduction in net unrealized
investment gains of $568,563, net income of $23,285, issuance of
common stock $55,323, offset by a reduction in additional paid in
capital of $38,173 and an increase in treasury stock of $10,920.
4. ACQUISITIONS
Effective June 1, 1996, American Capitol Insurance Company
("American Capitol"), a wholly-owned subsidiary of Acap
Corporation, a majority-owned subsidiary of the Company entered
into a Reinsurance and Assumption Agreement with World Service
Life Insurance Company of America ("World Service") and South
Texas Bankers Life Insurance Company ("South Texas Bankers"), a
wholly-owned subsidiary of World Service. Pursuant to the
agreement, American Capitol assumed all of the insurance in force
of World Service and South Texas Bankers, approximately 24,000
policies, for cash of approximately $1.9 million. The assets
transferred to American Capitol were $21.3 million in cash,
approximately $1.9 million of mortgage loans, a receivable of<PAGE>
FORTUNE NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
approximately $1.4 million and other assets of approximately $2.0
million. American Capitol's source of the $1.9 million in cash
is from a reinsurer in the form of the initial ceding allowance
under a coinsurance agreement (see "Reinsurance" below).
The consideration is subject to certain post-closing price
adjustments. Following the recent calculation of certain of the
post-closing price adjustments, World Service and South Texas
Bankers indicated an unwillingness to complete the transaction as
currently structured. American Capitol is presently in
negotiations with World Service and South Texas Bankers to find
an acceptable resolution to the situation. While the parties
appear to be close to agreement on a solution that would convert
the transaction from assumption reinsurance to coinsurance and
reduce the purchase price to approximately $1.6 million, there
can be no assurance that such an agreement will be made. If an
agreement cannot be made, possible outcomes include a rescission
of the transaction or litigation.
The nature and amount of the consideration paid were arrived at
on the basis of arm's-length negotiations and American Capitol's
consideration of various factors, including an actuarial
valuation of the insurance in force and judgments with regard to
the prospects and future of the acquired policies.
5. REINSURANCE
Effective June 30, 1996, American Capitol reinsured the acquired
business on a 100% coinsurance basis by amending an existing
reinsurance agreement with an unaffiliated reinsurer. American
Capitol retained the administration of the policies, for which it
will receive an expense allowance from the reinsurer. An
experience refund formula in the coinsurance allowance returns to
American Capitol 50% of the profits generated by the reinsured
policies above a specified threshold. Also, at American
Capitol's option, the reinsured policies may be recaptured at a
price determined by the experience formula.
This transaction increased reinsurance receivables by
approximately $24.1 million to a carrying value of $53.9 million
that were associated with a single reinsurer, Crown Life
Insurance Company ("Crown"). At December 31, 1994, Crown had
assets in excess of 7 billion and stockholders' equity of
approximately $0.4 billion. Crown is rated "Excellent" by A.M.
Best Company, an insurance company rating organization.
6. REAL ESTATE
Effective July 1, 1996 American Capitol signed a lease agreement
whereby an unaffiliated third party agreed to lease the remainder
of the rentable space of the home office building (approximately
34,919 square feet). The term of the lease is five years and the
FORTUNE NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
rental rate is $9.50 per square foot. A purchase option
agreement was signed with the same tenant. The purchase option
expires on September 30, 1997. The option purchase price of the
home office building is $1,200,000. If the option is exercised
the purchase price will be financed 73.5% by American Capitol at
an interest rate of 10.5%.
On May 14, 1996, an earnest money contract was signed for the
sale of 50,000 square feet of home office land to an unaffiliated
third party. The sale price is $7.25 per square foot, which, if
the transaction closes, will result in a pretax gain of
approximately $200,000.
7. SUPPLEMENTAL INFORMATION REGARDING CASH FLOWS
Cash payments of $32,071 and $558,924 were made for federal
income taxes during the six months ended June 30, 1996 and 1995,
respectively.
Cash payments of $61,218 and $348,262 for interest expense were
made during the six months ended June 30, 1996 and 1995,
respectively.
The following reflects assets acquired and liabilities assumed
relative to the acquisition of Oakley-Metcalf by the Company, the
consideration given for such acquisition and the net cash flow
relative to such acquisition on February 2, 1995.
Assets of acquired subsidiary $ 4,393,403
Liabilities of acquired subsidiary (1,833,887)
----------
Cost of acquisition $ 2,559,516
==========
Cash paid for acquisition $ 2,559 516
==========
Net cash from acquisition:
Cash of acquired company $ (607,216)
Cash paid for acquisition 2,559,516
-----------
Net cash used by acquisition $ 1,952,300
==========<PAGE>
FORTUNE NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following reflects assets acquired and liabilities assumed
relative to the assumption reinsurance of the policies of World
Service and South Texas Bankers by the Company, the consideration
given for such acquisition and the net cash flow relative to such
assumption reinsurance on June 1, 1996.
Assets acquired $ 26,580,285
Liabilities acquired (24,680,285)
-----------
Cost of acquisition $ 1,900,000
===========
Cash paid for acquisition $ 1,900,000
===========
Net cash from acquisition:
Cash acquired $ 21,271,962
-----------
Cash paid for acquisition (1,900,000)
-----------
Net cash provided by acquisition $ 19,371,962
===========
The following reflects assets and liabilities transferred in
connection with a coinsurance treaty whereby all policies assumed
from World Service and South Texas Bankers were 100% ceded to an
unaffiliated reinsurer, the ceding commission received and the
net cash flow related to the coinsurance treaty on June 30, 1996.
Assets transferred $ 22,343,982
Liabilities transferred 24,243,982
$( 1,900,000)
==========
Ceding commission received $ 1,900,000
----------
Net cash provided on the transfer of
assets and liabilities 0
==========
On January 4, 1995, Family Life Insurance Company of Texas
("Family"), a wholly-owned subsidiary of the Company increased
the amount of reinsurance on each of its life policies in force
from 20% to 100%. On February 2, 1995, Oakley-Metcalf entered
into a reinsurance agreement whereby Oakley-Metcalf ceded 100% of
each life policy with an unaffiliated life insurance company.
These transactions were both non-cash transactions. The Company
transferred assets of $2,020,065 and liabilities of $3,259,418
and recognized a deferred gain on the reinsurance of $1,239,353
to be amortized over the life of the policies.<PAGE>
FORTUNE NATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIGNIFICANT TRANSACTIONS
ACQUISITIONS
Effective June 1, 1996, American Capitol Insurance Company
("American Capitol"), a wholly-owned subsidiary of Acap
Corporation, a majority-owned subsidiary of the Company entered
into a Reinsurance and Assumption Agreement with World Service
Life Insurance Company of America ("World Service") and South
Texas Bankers Life Insurance Company ("South Texas Bankers"), a
wholly-owned subsidiary of World Service. Pursuant to the
agreement, American Capitol assumed all of the insurance in force
of World Service and South Texas Bankers, approximately 24,000
policies, for cash of approximately $1.9 million. The assets
transferred to American Capitol were $21.3 million in cash,
approximately $1.9 million of mortgage loans, a receivable of
approximately $1.4 million and other assets of approximately $2.0
million. American Capitol's source of the $1.9 million in cash
is from a reinsurer in the form of the initial ceding allowance
under a coinsurance agreement (see "Reinsurance" below).
The consideration is subject to certain post-closing price
adjustments. Following the recent calculation of certain of the
post-closing price adjustments, World Service and South Texas
Bankers indicated an unwillingness to complete the transaction as
currently structured. American Capitol is presently in
negotiations with World Service and South Texas Bankers to find
an acceptable resolution to the situation. While the parties
appear to be close to agreement on a solution that would convert
the transaction from assumption reinsurance to coinsurance and
reduce the purchase price to approximately $1.6 million, there
can be no assurance that such an agreement will be made. If an
agreement cannot be made, possible outcomes include a rescission
of the transaction or litigation.
The nature and amount of the consideration paid were arrived at
on the basis of arm's-length negotiations and American Capitol's
consideration of various factors, including an actuarial
valuation of the insurance in force and judgments with regard to
the prospects and future of the acquired policies.
REINSURANCE
Effective June 30, 1996, American Capitol reinsured the acquired
business on a 100% coinsurance basis by amending an existing
reinsurance agreement with an unaffiliated reinsurer. American
Capitol retained the administration of the policies, for which it
will receive an expense allowance from the reinsurer. An
experience refund formula in the coinsurance allowance returns to
American Capitol 50% of the profits generated by the reinsured
policies above a specified threshold. Also, at American
Capitol's option, the reinsured policies may be recaptured at a
price determined by the experience formula.
This transaction increased reinsurance receivables by
approximately $24.1 million to a carrying value of $53.9 million
that were associated with a single reinsurer, Crown Life
Insurance Company ("Crown"). At December 31, 1994, Crown had
assets in excess of 7 billion and stockholders' equity of
approximately $0.4 billion. Crown is rated "Excellent" by A.M.
Best Company, an insurance company rating organization.
RESULTS OF OPERATIONS
Premiums and other consideration were 21% higher during the first
half of 1996 in comparison to the first half of 1995. Premiums
and other consideration were 58% higher in the second quarter of
1996 in comparison to the second quarter of 1996. Premiums for
the first half of 1996 include one month of premiums of
approximately $500,000 from the acquisition of World Service and
South Texas Bankers. Premiums for the first half of 1995 include
approximately $500,000 in single premiums related to the
conversion of three trust-funded prepaid funeral service plans to
an insurance-funded plan. Excluding these two unusual items,
premiums and other considerations were 40% higher during the
first half of 1996 in comparison to the first half of 1995. The
increase in premiums is attributable to an expansion of the
Company's marketing of final expense life insurance and
insurance-funded prepaid funeral service contracts.
Net investment income increased 17% in the first half of 1996 in
comparison to the first half of 1995 and increased 56% during the
second quarter of 1996 in comparison to the second quarter of
1995. The increase in net investment income is primarily due to
the one month of net investment income earned on the assets
acquired from World Service and South Texas Bankers.
The amortization of the deferred gain on reinsurance decreased by
$155,152 in the first half of 1996 in comparison to the first
half of 1995 and by $95,514 in the second quarter of 1996 in
comparison to the second quarter of 1995. The deferred gain on
reinsurance is being amortized based upon the amount of insurance
in force under the reinsurance treaties to which the deferred
gain relates. During the first half of 1995, the reinsured
policies experienced an unusually high lever of terminations.
This resulted in a higher than normal amortization of the
deferred gain during that period.
The Company receives an expense allowance for administering
certain blocks of reinsured policies. The expense allowance
received during the first half of 1996 was 7% less than the
expense allowance received during the first half of 1995. The
expense allowance received during the second quarter of 1996 was
11% less than the expense allowance received during the second
quarter of 1995. The decrease is due to normal policy attrition
of the reinsured policies.
Total policy benefits (i.e. death benefits and other benefits)
were 45% of total revenue for the first half of 1996 compared to
39% of total revenue for the first half of 1995. Total policy
benefits were 50% of total revenue for the second quarter of 1996
compared to 42% of total revenue for the second quarter of 1995.
The first half of 1996 includes one month of death claims of
approximately $200,000 from the acquisition of World Service and
South Texas Bankers policies.
Total expenses (i.e. total benefits and expenses less total
policy benefits) were 51% of total revenue for the first quarter
of 1996 compared to 56% of total revenue for the first half of
1995. Total expenses were 45% of total revenue for the second
quarter of 1996 compared to 49% for the second quarter of 1995.
General expenses for the first half of 1995 included
approximately $72,000 in non-recurring actuarial charges related
to consultations on the Company's acquisition program and
approximately $35,000 in expense related to the settlement of a
policy dispute.
As a result of a transaction that increased the reinsurance from
20% to 100% on each of the life policies in force in a life
insurance subsidiary acquired August 31, 1994, the Company
incurred current federal income taxes of approximately $920,000.
Offsetting the increase in the current federal income tax
expense, the reinsurance transaction noted above resulted in a
deferred federal income tax benefit. The benefit related to the
reinsurance transaction was the majority of the total deferred
federal income tax benefit recorded in the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
In connection with an acquisition, the Company's 63.7% owned
subsidiary Acap Corporation (Acap) borrowed $1.5 million from a
bank on January 31, 1995. The note matured April 30, 1996. The
bank granted a new note maturing April 30, 1997 under identical
terms as the original note. The note bears interest at a rate
equal to the base rate of a bank plus 1%. Principal payments on
the note of $62,500 are due quarterly. The note had a principal
balance of $1,187,500 at June 30, 1996. The note is secured by a
pledge of all of the outstanding shares of American Capitol owned
by the Company. The loan agreement contains certain restrictions
and financial covenants. Without the written consent of the
bank, Acap may not incur any debt, pay common stock dividends or
sell any substantial amounts of assets. Also, American Capitol
is subject to minimum statutory earnings and capital and surplus
requirements during the loan term. Acap and American Capitol are
in compliance with all the restrictions and covenants of the
loan.
During the first half of 1996, there was a decline in net
unrealized investment gains of $568,563. The decline in invested
asset values was primarily the result of an increase in market
interest rates during the quarter. It is not anticipated that
the Company will need to liquidate investments prior to their
projected maturities in order to meet its cash flow requirements.
The Company had positive cash flows from operating activities
during the first half of 1996.
FORTUNE LIQUIDATION
As discussed in the Company's Annual Report on Form 10-KSB, the
Company expects to adopt a plan of dissolution and liquidation at
its annual stockholder meeting on August 26, 1996.
Under the plan, the Company's stockholders are entitled, upon
liquidation, to receive, pro rata, the Company's sole asset,
namely, 5,421 shares of common stock of Acap. No fractional
shares of Acap's common stock will be issued. The company's
stockholders will have the option of selling their "odd lot"
shares of the Company's common stock to Acap or buying from Acap
enough of the Company's common stock to round up their holdings.
The Company has entered into an agreement with Acap to pay for
the Company's operating expenses through the expiration of the
plan of dissolution and liquidation. In exchange for its
services, Acap received 55,323 shares of the Company's common
stock during the first quarter of 1996.
REAL ESTATE
On May 14, 1996, an earned money contract was signed for the sale
of 50,000 square feet of home office land to an unaffiliated
third party. The sale price is $7.25 per square foot, which, if
the transaction closes, will result in a pretax gain of
approximately $200,000.
SUBSEQUENT EVENT
Effective July 1, 1996 American Capitol signed a lease agreement
whereby an unaffiliated third party agreed to lease the remainder
of the rentable space of the home office building (approximately
34,919 square feet). The term of the lease is five years and the
rental rate is $9.50 per square foot. A purchase option
agreement was signed with the same tenant. The purchase option
expires on September 30, 1997. The option purchase price of the
home office building is $1,200,000. If the option is exercised
the purchase price will be financed 73.5% by American Capitol at
an interest rate of 10.5%.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Quarterly Report of
Form 10-QSB for the quarter ended June 30, 1996 to be signed on
its behalf by the undersigned thereunto duly authorized.
FORTUNE NATIONAL CORPORATION
(Registrant)
Date: August 14, 1996 By:/s/ William F. Guest
-----------------------------
William F. Guest, President
Date: August 14, 1996 By:/s/ John D. Cornett
------------------------------
John D. Cornett, Treasurer
(Principal Accounting Officer) <PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 27,213,009
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 14,212
<MORTGAGE> 2,890,310
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0
1,850,000
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1,203,478
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</TABLE>
