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U. S. 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 September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT for the transition period
from.......................to........................
Commission File Number 1-8069
Investors Insurance Group, Inc.
(Exact name of small business issuer as specified in its charter)
Florida 13-2574130
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No)
342 Willowbrook Lane
West Chester, PA 19382
(Address of principal executive office) (Zip Code)
(610)-430-3900
(Issuer's telephone number)
Check whether the issuer (1) 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. Yes [X] No [ ]
As of November 16, 1998, 2,836,582 shares of the issuer's common stock
were outstanding.
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Investors Insurance Group, Inc.
FORM 10-QSB
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page
Item 1: Balance Sheets - September 30, 1998
and December 31, 1997 3
Item 1: Statements of Operations - nine months
ended September 30, 1998 and 1997 4
Item 1: Statements of Operations - three months
ended September 30, 1998 and 1997 5
Item 1: Statements Comprehensive Income - nine
and three months ended September 30, 1998 and 1997 6
Item 1: Statements of Cash Flows - nine and three months
ended September 30, 1998 and 1997 7
Item 1: Notes to Financial Statements 8
Item 2: Management's Discussion and Analysis 11
Part II. OTHER INFORMATION
Item 1: Legal Proceedings 12
Item 2: Changes in Securities 12
Item 3: Default Upon Senior Securities 12
Item 4: Submission of Matters to a Vote of Security Holders 12
Item 5: Other Information 12
Item 6: Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Investors Insurance Group, Inc.
Balance Sheets
September 30, 1998 and December 31, 1997
(Dollars in thousands)
1998 1997
------ ------
Assets (restated)
Current Assets:
Cash and cash equivalents $ 746 $ -
Income tax recoverable 31 123
Other assets 4 23
------ ------
Total current assets $ 781 $ 146
====== ======
Liabilities
Current Liabilities:
Net equity in discontinued operations $ - $2,480
Accrued expenses 174 117
------ ------
Total current liabilities 174 2,597
Capital
Preferred Stock, no par, authorized
20,000,000 shares, none issued - -
Common stock, $0.50 par value; authorized
30,000,000 shares; issued 2,840,582 in
1998 and 1997; outstanding 2,836,582
in 1998 and 1997 1,420 1,420
Additional paid-in capital 3,656 3,656
Accumulated deficit (4,461) (9,340)
Unrealized appreciation of net equity in
discontinued operations - 1,821
Treasury stock, at cost (4,000 shares
in 1988 and 1987) (8) (8)
------ ------
Total capital 607 (2,451)
------ ------
Total liabilities and capital $ 781 $ 146
======= ======
See accompanying notes to consolidated financial statements Investors
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Insurance Group, Inc.
Statements of Operations (unaudited)
For the Nine Months Ended September 30, 1998 and 1997
(Dollars in thousands, except per share data)
1998 1997
------- -------
(restated)
Revenue $ - $ -
----- -----
Expenses
General and administrative expenses 136 185
Interest expense - 160
----- -----
Total expenses 136 345
----- -----
Loss from operations (136) (345)
Realized investment gains - 12
Interest income 8 -
----- -----
Loss from continuing operations (128) (333)
Income tax benefit 31 65
----- -----
Loss from continuing operations (97) (268)
Discontinued operations:
Income from operations of discontinued
operations less applicable income
taxes of $13 in 1998 and $65 in 1997 200 1,411
Gain on disposal 4,776 -
----- -----
Net income $4,879 $1,143
===== =====
Basic and diluted earnings (loss) per share:
Continuing operations $(0.03) $(0.09)
Discontinued operations 1.75 0.49
----- -----
Net income $ 1.72 $ 0.40
===== =====
Weighted average shares outstanding 2,836,582 2,836,412
========= =========
See accompanying notes to consolidated financial statements.
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Insurance Group, Inc.
Statements of Operations (unaudited)
For the Three Months Ended September 30, 1998 and 1997
(Dollars in thousands, except per share data)
1998 1997
------- --------
(restated)
Revenue $ - $ -
----- -----
Expenses
General and administrative expenses 19 123
----- -----
Total expenses 19 123
----- -----
Loss from operations (19) (123)
Interest income 6 -
----- -----
Loss from continuing operations (13) (123)
Income tax benefit - 65
----- -----
Loss from continuing operations (13) (58)
Discontinued operations:
Income from operations of discontinued
operations less applicable income
taxes of $0 in 1988 and $65 in 1997 - 783
Gain on disposal - -
----- -----
Net income (loss) $ (13) $ 725
===== =====
Basic and diluted earnings (loss) per share:
Continuing operations $(0.00) $(0.02)
Discontinued operations (0.00) 0.28
----- -----
Net income (loss) $(0.00) $ 0.26
===== =====
Weighted average shares outstanding 2,836,582 2,836,482
========= =========
See accompanying notes to consolidated financial statements.
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Investors Insurance Group, Inc.
Statements of Comprehensive Income (unaudited)
For the Nine Months and Three Months Ended September 30, 1998 and 1997
(Dollars in thousands)
Nine Months Three Months
------------------ -----------------
1998 1997 1998 1997
------- -------- ------- --------
Net income (loss) $ 4,879 $ 1,141 $ (13) $ 725
Other comprehensive income:
Change in unrealized value of the net
equity in discontinued operations,
before income tax:
From operations 74 1,051 - 1,140
From disposal (1,895) - - -
------- -------- ------- --------
Net impact before income taxes (1,821) 1,051 - 1,140
Income tax expense related to the
change in unrealized value of net
equity in discontinued operations - - - -
------- -------- ------- --------
Other comprehensive income (1,821) 1,051 - 1,140
------- -------- ------- --------
Comprehensive income (loss) $ 3,058 $ 2,194 $ (13) $ 1,865
======= ======== ======= ========
See accompanying notes to consolidated financial statements Investors
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Insurance Group, Inc.
Statements of Cash Flows (unaudited)
For the Nine Months Ended September 30, 1998 and 1997
(Dollars in thousands)
1998 1997
-------- --------
(restated)
Cash flow from operating activities:
Net income $4,879 $1,143
Adjustments to reconcile net income to net
cash used in operating activities:
Equity in earnings of discontinued operations (200) (1,411)
Gain on disposal of discontinued operations (4,776) -
Realized investment gains - (12)
Interest expense - 160
Change in other assets and liabilities, net 43 26
------- ------
Net cash used in operating activities (54) (94)
Settlement of litigation related to the IIG Note 638 -
Income tax refund received 123 -
Cash from the sale of investments - 22
Dividends received 39 -
------- ------
Net change in cash 746 (72)
Cash and cash equivalents:
Beginning of year - 72
------- ------
As of September 30 $ 746 $ -
======= ======
See accompanying notes to consolidated financial statements
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Investors Insurance Group, Inc.
Notes to consolidated Financial Statements
(unaudited)
1. Management Representation
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting only of normal recurring items) necessary
to present fairly the financial position of Investors Insurance Group, Inc.
("IIG" or "Company"), as of September 30, 1998, and the results of operations,
comprehensive income and cash flows for the three month periods ended September
30, 1998 and 1997.
2. Reporting Standards
The Company files its financial statements in compliance with Regulation S-B
of the Securities and Exchange Commission.
3. Stock Options
The Agent's Stock Option Plan was not renewed by the Board in 1997 and no new
options have been granted. If unexercised, the outstanding options expire two
years after issue. During the Nine month period ended September 30, 1998,
45,600 share options expired.
4. Note Payable and Settlement of Related Litigation
In connection with its acquisition of IIC Inc. ("IIC"), IIG issued an
$8,000,000 subordinated note payable which was due March 31, 1997, with
interest at 8% payable quarterly ("IIG Note"). As discussed more fully in the
Company's 1997 Form 10KSB and Form 8K dated May 28, 1998, IIG had several
material outstanding claims against the IIG Note and the matter has been the
subject of litigation for some time.
In April 1998, IIG and the noteholder executed a Settlement Agreement and
Release (the "Agreement") for global settlement of all the issues related to
the IIG Note, dismissal of all related litigation and mutual releases from
further litigation. Under the terms of this Agreement which became effective
in May 1998, IIG received $637,711 in cash, the rights to the full federal tax
refund from the 1997 federal tax return, and satisfaction of the IIG Note and
accrued interest. In return, the noteholder received all the outstanding
shares of IIC, Inc. (including the shares of Investors Insurance Corporation)
and IIG's option to purchase certain securities held by Investors Insurance
Corporation.
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The accompanying financial statements have been restated to reflect the impact
of this transaction as a discontinued operation. The pro forma impacts of
this transaction on prior financial statements are summarized below:
Year ending
December 31, 1997
---------------------------------
Originally Adjustments Pro Forma
Reported
---------- ---------- ---------
Revenue $ 9,319 $(9,307) $ 12
Operating Expense 8,547 (8,194) 353
------- ------- -------
Income (loss) 772 (1,113) (341)
Income tax benefit 204 (181) 23
------- ------- -------
Income (loss) from
continuing operations 976 (1,294) (318)
Discontinued operation:
Operating income - 1,294 1,294
------- ------- -------
Net Income $ 976 $ - $ 976
======= ======= =======
Earnings per share:
Continuing operations $0.34 $(0.45) $(0.11)
Discontinued operations:
Operating income - 0.45 0.45
----- ------ ------
Net Income per share $0.34 $ 0.00 $ 0.34
===== ====== ======
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5. Income Taxes
On a tax basis, the settlement of the IIG Note and disposal of IIC, Inc.
results in a capital loss of approximately $917,000 which can be carried
forward to offset future capital gains until December 31, 2003. The
regular operating loss carryforward is reduced from approximately $8,256,000
to approximately $7,493,000 as of December 31, 1997.
6. Related Party Transactions
Over the past several years, Vice President Donald Goebert, who serves without
compensation, devoted a substantial amount of his time to resolution of the
issues related to the IIG Note. In recognition of these services, Management
has accrued $50,000 in consulting fees which it plans to pay Mr. Goebert. In
addition, Mr. Goebert was reinbursed $16,500 for legal and financing expenses
he paid on behalf of IIG.
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Item 2: Management Discussion and Analysis
General
The following discussion and analysis for Investors Insurance Group, Inc.
("Company") and its wholly-owned subsidiaries, primarily Investors Insurance
Corporation ("Investors"), updates the discussion and analysis contained in
the Company's Annual Report on Form 10KSB for the year ended December 31, 1997
and should be read in conjunction with that report and the Notes to the
September 30, 1998 financial statements presented under Item 1.
Results of Operations
In connection with its acquisition of IIC Inc. ("IIC"), IIG issued an
$8,000,000 subordinated note payable which was due March 31, 1997, with
interest at 8% payable quarterly ("IIG Note"). As discussed more fully in the
Company's 1997 Form 10KSB and Form 8K dated May 28, 1998, IIG had several
material outstanding claims against the IIG Note and the matter has been the
subject of litigation for some time.
In April, 1998, IIG and the noteholder executed a Settlement Agreement and
Release (the "Agreement") for global settlement of all the issues related to
the IIG Note, dismissal of all related litigation and mutual releases from
further litigation. Under the terms of this Agreement which became effective
in May 1998, IIG received $637,711 in cash, the rights to the full federal tax
refund from the 1997 federal tax return, and satisfaction of the IIG Note and
accrued interest. In return, the noteholder received all the outstanding
shares of IIC, Inc. (including the shares of Investors Insurance Corporation)
and IIG's option to purchase certain securities held by Investors Insurance
Corporation.
The Company's 1998 operating expenses include approximately $71,000 (including
$16,500 during the three months ending September 30, 1998) for nonrecurring
legal and consulting fees related to the settlement of the IIG Note. The 1997
operating expense include the accrual of interest on the IIG Note through it
maturity on March 31, 1997.
In September 1998, Mr. Parker resigned his positions as an officer and
director of IIG. Mr. Goebert has assumed these responsibilities until the
Board names successors.
Liquidity and Capital Resources
Until a suitable business opportunity is located, future operating results of
the Company will consist of investment income on the available cash deposits
and the expenses of maintaining the Company's regulatory filings. The
available cash is fully adequate to meet these requirements.
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PART II: OTHER INFORMATION
Item 1: Legal Proceedings
The action filed in the United States District Court for the Middle District
of Florida by the Honorable Donna Lee Williams, Insurance Commissioner of the
State of Delaware as Receiver of National Heritage Life Insurance Company v.
Investors Insurance Group, Inc., U.S.D.C., M.D. Fla 97-773-CV-ORI-19 has been
dismissed with prejudice. In April 1998, the parties mutually agreed to
amicably resolve their disputes as to the ownership of the IIG Note pursuant
to the terms of a Settlement Agreement and Release.
Item 2: Changes in Securities
No changes to report
Item 3: Defaults on Senior Securities
None
Item 4: Submissions of Matters to a Vote of Security Holders
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
a). Exhibits
b). Reports on Form 8-K
During the quarter ended September 30, 1998, the Company has
not filed any Form 8K reports.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Investors Insurance Group, Inc.
(Registrant)
Date: November 16, 1998 /s/ Donald F. U. Goebert
______________________________
Donald F. U. Goebert
Acting President, Chief Executive
Officer and Chief Financial Officer
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