SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or
15(d) of the Securities Exchange Act
of 1934
For Quarter Ended March 31, 1997
Commission
file number 0-2650
Washington Security Life Insurance Company
F/K/A Frontier Insurance Company
(exact name of registrant as specified in its charter)
Missouri 44-0666926_____
(State or other jurisdiction of (IRS Employer ID )
incorporation or organization)
916 Sherwood Drive Lake Bluff, IL 60044
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 615-9255
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 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 Company had 1,104,882 shares of $1 par value stock outstanding at
March 31, 1997.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WASHINGTON SECURITY LIFE INSURANCE COMPANY
WASHINGTON SECURITY LIFE INSURANCE COMPANY BALANCE SHEETS
ASSETS
(UNAUDITED)
March 31, December 31,
1997 1996
INVESTMENTS
Mortgage loans on real estate $0 $123
US Governement bonds 600,000 600,000
Short-term investments 609,306 609,043
Total investments $1,209,306 $1,209,166
CASH 246,721 21,893
ACCRUED INCOME 26,783 11,610
ACCOUNTS AND NOTES RECEIVABLE 3,000
PROPERTY AND EQUIPMENT - NET 345,200
OTHER ASSETS 12,337
TOTAL ASSETS $1,485,810 $1,600,206
WASHINGTON SECURITY LIFE INSURANCE COMPANY
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
March 31, 1997 December 31, 1996
LIABILTIES
Mortgage and other notes payable 0 81,165
Other liabilities 20,782 32,618
$20,782 $113,783
STOCKHOLDERS' EQUITY
Common stock, $1 par value:
authorized 3,000,000 shares,
1,104,882 shares issued
and outstanding $1,104,882 $1,104,882
Additional paid-in capital 2,920,082 2,920,082
Surplus Notes 200,000 200,000
(Deficit) (2,759,936) (2,738,541)
Capital and Surplus $1,465,028 $1,486,423
Total liabilities and equity $1,485,810 $1,600,206
WASHINGTON SECURITY LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
1997 1996
REVENUES
Net investment income $ 45,518 $ 39,879
Other revenues 0 0
$ 45,518 $ 39,879
BENEFITS,CLAIMS AND EXPENSES
Benefits and claims $ (23,528)
Underwriting, aquisitions, insurance
and administrative expenses 58,012 60,964
$ 58,012 $ 37,436
GAIN (LOSS) BEFORE FEDERAL INCOME TAXES $ (12,494) $ 2,443
PROVISION FOR INCOME TAXES (REFUND) 0 0
NET GAIN (LOSS) $ (12,494) $ 2,443
PAID IN SURPLUS (SURPLUS NOTES) $ 200,000
NET GAIN (LOSS) PER SHARE (0.01) 0.02
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK $1,104,882 $1,104,882
WASHINGTON SECURITY LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three
Months Ended
March
31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net investment income and other $30,345 $52,916
Benefits and claims (23,528)
Underwriting, insurance and
administrative expenses (50,045) (44,090)
Net cash provided by (used in)
operating activities $(19,700) $(14,702)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale and maturity
of investments $259,024 $ 546
Purchase of investments 0
Purchase of property and
equipment (14,213) (2,973)
Other (20) (12)
Additional surplus contributions 100,000
Net cash provided by (used in)
investment activities $244,791 $ 82,859
INCREASE (DECREASE) IN CASH $225,091 $ 82,859
CASH, BEGINNING OF PERIOD $630,936 $675,556
CASH, END OF PERIOD $856,027 $758,415
FINANCIAL STATEMENTS
MARCH 31, 1997
PART I - FINANCIAL INFORMATION
Item 2. Management Discussion and Analysis of
Financial Condition and Results of Operations
March 31, 1997
Liquidity and Capital
The current liquidity of Registrant remains dependent on its
investment income. This has been improved through the disposition of
non-revenue producing assets and the liquidation of its investments in
real estate. Cash flow from new investments in US Government Guaranteed
Securities enhances operations.
Registrant received an increase in capital and surplus by the sale of
surplus notes ($200,000) and the sale of a non-admissible asset ($250,000)
during 1996. Registrant is still intent on seeking other sources for
increasing capital and surplus.
Operations
Registrant remains in a dormant state with regards to its insurance
operations. It incurred a statutory net loss of $12,494 for the three months
ended March 31, 1997, compared to a net gain of $2,443 for the same period
in 1996.
The increase in "Cash" and the increase in "Accrued Income" as of
March 31, 1997 are the direct result of the sale of the real estate acquired
in 1996 in exchange for debt paper of Registrant's former parent,
International Mercantile Corporation.
The changes in "Accounts and Notes Receivable" and
"Property and Equipment" are attributable to the sale of
(A) the property received in exchange for the collateral loan and
(B) the building which had served as Registrant's Home Office.
The decrease in "Other Assets" is the result of the sale of the
partnership oil venture for cash.
Since the Registrant currently has no policyholders and since the
Registrant is no longer a part of a holding company system, these unaudited
financial numbers are compared on a statutory basis which now corresponds
with GAAP.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Administrative Actions Taken by State Department of Insurance
Since 1994, Registrant has agreed to refrain from soliciting new
business in its state of domicile, Missouri, and all states where it is
otherwise licensed to operate. This will continue indefinitely and until
sufficient new capital/surplus funds have been acquired to re-qualify
the company to operate in Missouri and other states.
SEC Investigation
On May 14, 1993, Registrant's executive officers were advised by
officials of the Enforcement Division of the United States Securities and
Exchange Commission (the "Commission"), that an informal investigation of
Registrant, International Mercantile Corporation (IMC) and Universal Life
Holding Corporation (ULHC) was being conducted by the Commission.
Following extensive investigation and testimony, the Commission
notified the Registrant by letter dated October 11, 1995 that the staff of
the Division of Enforcement intended to recommend filing a civil injunctive
action in Federal District Court against Registrant and its affiliates,
IMC and ULHC, for violating Sections 10(b), 14(a), 13(a), 13(b)(2)(A) and (B)
of the Securities Exchange Act of 1934 and Rules 10b-5, 13a-1, 13a-13 and
12b-20 thereunder.
The matter was resolved by the Registrant's written acceptance of
certain prohibitions and injunctions against further violations. No penalites
were assessed.
Bruce and Bruce v. The CJ Brown Corporation, et al
On March 2, 1995, Robert E. Bruce and William D. Bruce filed a
Complaint in the United States District Court, Western District of Missouri,
Western Division, seeking a declaratory judgment releasing them of any
liabilities which they might have under a certain Agreement dated
August 25, 1994, entered into by the CJ Brown Corporation, Life America
Corporation (LAC), Ronald T. Benitez, 1122 Corporation and the plaintiffs.
That Agreement, to which neither Registrant nor any of its affiliates was a
party, set forth a series of transactions by which plaintiffs were to acquire
a controlling interest of Registrant and its affiliates.
The Missouri Department of Insurance had denied the plaintiffs' request for
a "Form A" approval of the change of control of Registrant through an
acquisition by plaintiffs of controlling interest in IMC. Plaintiffs
maintained that the Missouri Department of Insurance's disapproval for
their Form A Application resulted in an extinction of their obligations under
the agreement of August 25, 1994.
The parties agreed to binding arbitration under the auspices of the
United States District Court, Western District of Missouri, Western Division.
As a result the case was dismissed in August 1996.
The Ventana Corporation, et al. v. William D. Bruce et al
In a petition for Breach of Contract, Damages and Specific Performance
filed in the 19th Judicial Circuit for the Parish of East Baton Rouge,
Louisiana, on March 10, 1995 the Ventana Corporation (formerly CJ Brown
Corporation) filed an action against William D. Bruce, Robert E. Bruce and
IMC seeking damages for a breach of the agreement of August 25, 1994.
The parties agreed to binding arbitration under the auspices of the
United States District Court, Western District of Missouri, Western Division.
As a result the case was dismissed in August 1996.
In re: The Ventana Corporation a/k/a The CJ Brown Corporation
On March 17, 1995, IMC and Home America Company, a then subsidiary of
Registrant, filed an involuntarybankruptcy petition against the Ventana
Corporation, formerly known as The CJ Brown Corporation. Ronald Brignac,
a former director of Registrant, was the third creditor.
This litigation also was included in the Bruce vs. Brown and Ventana vs.
Bruce cases for binding arbitration. As a result the case was dismissed in
August 1996.
Jesse E. LeBlanc, II and Ocean Sailing Corporation versus Frontier Insurance
Company, The CJ Brown Corporation and Ronald T. Benitez
Civil District Court for the Parish of Orleans, State of Louisiana,
No. 94-1168, Division "J". This action was brought seeking damages for the
alleged wrongful taking of corporate stock of Travel America, Inc., which
stock was pledged to secure a loan from the Company which subsequently went
into default. Pursuant to related proceedings initiated by the Registrant,
the subject corporate stock was seized and sold pursuant to court order.
This action effectively sought to collaterally attach that prior judicial
holding. An exception based upon the prior action was asserted in this
proceeding, and was denied. Subsequently, prior to the filing of an answer,
plaintiff sought to obtain a default judgment in this case. Prior to the
default judgment becoming final, a timely motion for new trial was filed,
the effect of which was to preclude any enforcement of the default judgment.
The trial court declined to act on the motion for a new trial, as a result of
which application for supervisory writs was submitted to the Louisiana
Fourth Circuit Court of Appeals.
The Court of Appeals reversed the trial court's decision and ordered
that the Registrant be dismissed.
As of March 31, 1997, Registrant had no litigation in process and is not
aware of any actions threatened.
PART II - OTHER INFORMATION
Items. Other Information
On November 17, 1995, Registrant's parent, International Mercantile
Corporation (IMC) conveyed all of its shares of Registrant to Robert E. Bruce
and William D. Bruce in exchange for cancellation of: an IMC promissory note
held by the Bruces; and a consulting agreement with the Bruces. A concurrent
agreement was entered into by IMC and Registrant whereby IMC acquired
Registrant's subsidiary, Home America Corporation, plus a mortgage loan in
return for a $600,000 loan collateralized by the Home America stock and other
assignments.
On December 20, 1995, the Bruces made a new Form A Application to the
Missouri Department of Insurance for control of Registrant. This application
was approved on May 23, 1996, following a $200,000 cash purchase of surplus
notes and a $250,000 cash purchase of a non- admissible asset of Registrant
by the Bruces that collectively served to make Registrant's capital and
surplus exceed $1,400,000.
The collateralized loan agreement between IMC and Registrant was
amended in April 1996. The amendment terminated the loan in exchange for
title to certain property of Home America known as Staring Lane. Staring
Lane was sold for cash in March 1997.
Item 6. Exhibits and Reports on Form 8-K
Nothing additional to report.
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.
WASHINGTON SECURITY LIFE INSURANCE COMPANY
DATE: May 13, 1997 W. D. Bruce, President
DATE: May 13, 1997 R. E. Bruce, Secretary
