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 March 31, 1997 .
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-13538
NATIONAL AFFILIATED CORPORATION
(Exact Name of small business issuer as specified in its charter)
Louisiana 72-0947819
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
7228 England Drive, Suite 24, P.O. Box 12190, Alexandria, LA 71315
(Address of principal executive offices)
(318) 473-4355
(Insurer's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
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
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Registrant had 8,765,415 Voting Common Shares outstanding on March 31, 1997.
Page 1 of 14
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial Statements are attached beginning at page 6.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations is attached beginning at page 10.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company and NAIL are involved in lawsuits related to
their operations. In most cases, such lawsuits involve claims under insurance
policies of NAIL or other contracts of the Company.
On July 11, 1997, NAIL reached an agreement with plaintiffs to settle four
separate lawsuits related to a common series of events regarding a health
policy in Alabama: Johnson v. NAIL, Thomas v. NAIL, Gooden v. NAIL, and Allen
v. NAIL. In connection with this settlement agreement, the plaintiffs will
receive $850,000 of which $26,000 will be paid by NAIL and $824,000 will be
paid by the insurance carrier for the Company. The settlement did not result
in any additional charge to the earnings of the Company. A reserve for this
lawsuit had been previously established.
The Alabama cases, which had been consolidated for purposes of discovery,
related to claims regarding alleged misrepresentations by an agent to employees
of a garment plant in Greensboro, Alabama, regarding the cost of health
insurance policies. The Johnson, Thomas and Gooden cases were filed by
individual plaintiffs. The Allen case included as plaintiffs, approximately 50
employees of the garment plant. NAIL believed that not all of the plaintiffs in
the Allen case paid any policy premiums or were included in the policies.
NAIL has outstanding two lawsuits related to claims by purchasers of the FLA 100
founders policies. NAIL issued more than 14,000 individual FLA 100 founders
policies from 1982 to 1988. At December 31, 1996, approximately 1,200 of these
policies remained in force of which approximately 600 were premium paying. These
founders policies were participating life policies that paid a dividend to
policyholders. According to the terms of the policy, NAIL was not required to
pay dividends after the third anniversary date of each policy. While NAIL did
pay dividends during the required three anniversary dates on each policy, in
1992, NAIL ceased paying dividends with respect to any FLA 100 policies. In
Landreneau, et. al.v. NAIL, plaintiff filed a lawsuit in Louisiana's 13th
Judicial District Court on May 10, 1995, alleging breach of contract and fraud
regarding the sale of FLA 100 founders policies. The plaintiff had purchased six
units of coverage and paid for renewal for a total of five years on these
policies. The trial court rendered a judgment in favor of the plaintiff in the
approximate amount of $34,000, less the cost of insurance, which is
approximately $7,000, plus interest. This judgment was in general computed as
the amount of the premiums paid less the value of the life
Page 2 of 14
insurance coverage provided plus attorneys' fees. This judgment was affirmed by
the Third Court of Appeals of the State of Louisiana and NAIL filed an appeal
with the Supreme Court of the State of Louisiana. On May 9, 1997, the Supreme
Court of the State of Louisiana denied the request of NAIL to hear an appeal of
this matter. Accordingly, NAIL will be required to pay the amount of the
judgment entered by the trial court. A separate lawsuit, Classert et. al. v.
NAIL et. al., filed in the 18th Judicial District Court, on August 26, 1996,
also relates to the FLA 100 founders policies. Five plaintiffs asserting to
represent the class of persons that purchased FLA 100 founders policies allege
fraudulent sales practices by former employees of NAIL and are seeking
unspecified damages. NAIL opposes the certification of these plaintiffs
as representatives of the class of persons that purchased FLA 100 policies and
intends to continue to vigorously oppose such certification and otherwise to
defend this case.
Although discovery has begun in the Classert case, there remain significant
procedural matters to be resolved and significant additional discovery before
NAIL will be able to make an accurate prediction of the likely outcome of this
case. Based on the best estimates of the schedule for resolving the procedural
and discovery matters in connection with this case, management believes that
the issue of whether the case will proceed as a class action will be heard by
the trial court in the third or fourth quarter of 1997 with a possible trial
date not set until late 1998 or mid 1999.
If the court certifies a class of persons including a significant number of the
former FLA 100 policyholders and a judgment is rendered in favor of such a
class of plaintiffs, such an adverse judgment would have a material adverse
effect on NAIL.
In a lawsuit styled Newsome v. NAIL, et. al., filed in the Jefferson County
Circuit Court in Alabama, the plaintiff alleges breach of contract, fraud and
related causes of action based on the alleged failure of NAIL to provide
coverage under a short term medical policy. The plaintiff has claimed
approximately $30,000 in medical expenses and has requested other unspecified
claims including a claim for punitive damages. This claim arises from an agent
that was not a licensed agent of NAIL allegedly failing to cause timely
delivery to NAIL of the plaintiff's insurance policy application and premium
payment during the required 30-day application period, and the subsequent
denial by NAIL to provide coverage for claims related to injuries sustained by
the plaintiff before a policy was delivered to NAIL's home office. NAIL is
vigorously defending this suit and does not anticipate that a resolution of
this outstanding lawsuit and claim will result in any additional material
impact on the financial condition of the Company.
The Company and NAIL have other outstanding lawsuits as well as other
claims that arise in the ordinary course of business. Even though the Company
and NAIL may be contesting the validity or extent of its liability in response
to such lawsuits, the Company has established reserves in its consolidated
financial statements that approximate its estimated potential liability.
Included in the financial statements is a total reserve of $322,000 that has
been established with respect to all of the lawsuits and claims against the
Company and NAIL. In establishing this reserve, management has taken into
account the facts and circumstances of each case, the advice of counsel, the
availability of insurance coverages and other factors deemed by them to be
relevant.
Page 3 of 14
ITEM 2. CHANGES IN SECURITIES
A former director and three employees acquired 24,500 shares of common stock of
the Company upon the exercise of options at $0.50 per share between February 18,
1997 and March 17, 1997. These shares were issued pursuant to a registration
statement filed by the Company on Form S-8.
On May 21, 1997, NAC completed the sale of $1,500,000 of convertible debentures
which was previously reported by the Company in its Annual Report on Form 10-K
for the fiscal year ended December 31, 1996. The debentures were sold to
purchasers who were not United States persons in transactions occurring outside
of the United States. All of the purchasers were institutional investors. The
offering was completed with the assistance of European American Securities,
Inc., a NASDAQ licensed broker-dealer domiciled in London, who was paid a
commission of $150,000 in connection with the placement. The offering is
intended to be exempt from registration pursuant to Regulation S promulgated
under the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
Description of Sequential Numbering
Exhibit Table Number Exhibit Location
11 Statement of Page 14
Computation of
Per Share
Earnings
(b) Reports on Form 8-K
None
Page 4 of 48
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.
NATIONAL AFFILIATED CORPORATION
(Registrant)
Date: July 24, 1997 By:T. Brent Chapel, CPA
T. Brent Chapel, CPA
Chief Financial Officer (Duly
authorized officer and principal accounting officer of the
Registrant)
NATIONAL AFFILIATED CORPORATION AND SUBSIDIARIES
Page 5 of 14
NATIONAL AFFILIATED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
1997 1996
ASSETS:
Cash $121,244 $195,835
Invested assets:
Fixed maturities available-for-sale at market 1,416,509 1,227,902
Equity securities available-for-sale at market 337,187 80,938
Mortgage loans 1,661,875 1,425,000
Collateral loans 1,244,322 881,822
Other long-term investments at equity 118,114 127,775
Other long-term investments at market 39,000 0
Certificates of deposit and time deposits 662,337 24,673
Restricted assets at market 1,030,039 1,032,000
Accrued investment income 52,028 62,313
Finance notes receivable - net 2,681 7,117
Policy loans 96,546 107,830
Reinsurance receivable 703,807 679,623
Other amounts receivable:
Premiums due and uncollected 14,161 25,458
Agents' balances (net of allowance for uncollectible 169,740 138,133
account of $150,000 in 1996 and $131,500 in 1995)
Other 449,107 2,139,330
Property - net 135,399 136,839
Deferred policy acquisition costs 876,606 966,545
Other assets 19,072 21,482
TOTAL $9,149,774 $9,280,615
LIABILITIES AND STOCKHOLDERS' EQUITY:
Policy benefit reserves $3,587,049 $3,650,190
Policy claims 1,109,417 961,697
Unearned premiums 25,670 24,642
Dividends left on deposit 283,342 304,697
Advance premium deposits 162,141 168,141
Other policyholders' funds 7,904 11,452
Accounts payable and accruals 347,262 301,464
Total liabilities 5,522,785 5,422,283
Commitments and contingent liabilities
Stockholders' equity:
Voting common shares, no par; 14,000,000 shares
authorized; 8,740,915 and 3,461,028 shares issued 9,287,253 9,275,003
Additional paid-in capital 154,500 154,500
Net unrealized investment gains (losses) (547,188) (508,846)
Accumulated deficit (5,267,576) (5,062,325)
Subtotal 3,626,989 3,858,332
Less treasury stock - at cost (181,539 shares) 0 0
Total stockholders' equity 3,626,989 3,858,332
TOTAL $9,149,774 $9,280,615
See notes to consolidated financial statements.
Page 6 of 14
NATIONAL AFFILIATED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
REVENUES:
Insurance premiums $605,151 $533,919
Net investment income 60,702 135,608
Finance company interest and fees 902 0
Other income 43,305 13,173
Total revenues 710,060 682,700
EXPENSES:
Decrease in policy benefit reserves (361,085) (22,046)
Claims and other benefits 535,062 333,562
Policyholder dividends 2,252 2,211
Commission expense 57,954 85,326
Depreciation and amortization 1,440 6,563
Interest expense 13,039 9,539
Salaries, wages and taxes 165,375 185,277
Other operating expense 161,335 309,784
Amortization of deferred acquisition costs 89,939 157,914
Total expenses 665,311 1,068,130
GAIN (LOSS) BEFORE INCOME TAXES 44,749 (385,430)
PROVISION FOR INCOME TAXES 0 0
NET GAIN (LOSS) $44,749 ($385,430)
LOSS PER COMMON SHARE $0.01 ($0.11)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,753,165 3,579,489
See notes to consolidated financial statements.
Page 7 of 14
NATIONAL AFFILIATED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
Cash flows from operating activities:
Net gain (loss) $44,749 ($385,430)
Non-cash and non-operating items:
Gain on sale of invested assets 1,418 (77,501)
Depreciation and amortization 1,440 6,583
Change in assets and liabilities:
Deferred policy acquisition costs 89,939 157,914
Policy benefit reserves and unearned premiums (312,113) (113,137)
Policy claims 147,720 (195,934)
Equity write-down of other long-term investments 9,661 3,444
Accounts payable and accruals 45,798 (1,557,760)
Due from reinsurance companies (24,184) 107,717
Other 1,710,667 275,775
Net cash used in operating activities 1,715,095 (1,778,329)
Cash flows from investing activities:
Acquisitions of:
Invested assets
Fixed maturities available-for-sale (616,245) (872,640)
Equity securities at market (262,500) 0
Mortgage loans (236,875) 0
Collateral loans (362,500) 0
Other long-term investments (39,000) 0
Certificates of deposit and time deposits (637,664) 0
Property 0 0
Proceeds from:
Invested assets
Fixed maturities available-for-sale 396,090 1,972,875
Other long-term investments 0 29,000
Certificates of deposit and time deposits 0 117,317
Finance notes receivable 4,436 0
Policy loans 11,284 (9,931)
Agent's balances - net (31,607) 17,121
Net cash provided from investing activities (1,774,581) 1,253,742
Cash flows from financing activities:
Withdrawals of dividends and advance premiums - net (27,355) (29,566)
Sale of additional common stock 12,250 195,000
Net cash provided from (used in) financing activities(15,105) 165,434
Net decrease in cash (74,591) (359,153)
Cash at beginning of year 195,835 306,686
Cash at end of period 121,244 ($52,467)
Supplemental cash flows disclosures:
Interest paid $6,535 $1,482
Income taxes paid $0 $0
See notes to consolidated financial statements.
Page 8 of 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
NOTE 1 - REPRESENTATION BY MANAGEMENT
The unaudited consolidated financial statements included herein reflect all
normal, recurring adjustments which are necessary to a fair presentation of the
consolidated financial position, results of operations and cash flows for the
interim periods presented.
The results of operations for the three month period ended March 31, 1997, are
not necessarily indicative of the results to be expected for the entire year of
1997.
NOTE 2 - ACCOUNTING CHANGE
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." This standard requires classification of investment
securities into three categories: held-to-maturity, trading, and available
for sale. The Company has classified all of its investment securities as
available for sale. As a result, these securities are now required to be
reported in the balance sheet at their fair value, with unrealized gains and
losses reported in a separate component of stockholders' equity.
Page 9 of 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Management's discussion and analysis reviews the consolidated financial
condition of National Affiliated Corporation ("NAC" or "the Company") at March
31, 1997 and 1996, the consolidated results of operations for the years ended
March 31, 1997 and 1996, and, where appropriate, factors that may affect
future financial performance. This discussion should be read in conjunction
with the accompanying consolidated financial statements, notes thereto and
selected financial data.
Previously, the Company, through its wholly-owned subsidiary, National
Affiliated Investors Life Insurance Company ("NAIL"), issued life and accident
and health insurance policies to customers in targeted niche markets in urban
and rural areas. Beginning in 1997, the Company changed its focus to reduce
its operating and marketing costs and to begin steps to acquire other life
insurance companies.
The Company reached agreement with plaintiffs to settle four lawsuits in
Alabama. The settlement payment to the plaintiffs will be paid primarily by use
of insurance coverage of NAIL and will not result in any additional charge to
the earnings of the Company. See "Item 1. Legal Proceedings."
Financial Condition
The Company's assets at March 31, 1997, totaled $9,149,774 as compared to
$9,280,615 on December 31, 1996. Liabilities totaled $5,272,785 and $5,422,283
on March 31, 1997 and December 31, 1996, respectively. Stockholder's equity
increased to $3,876,989 at March 31, 1997, from $3,858,332 at December 31,
1996. Equity securities increased by $256,249 due to common stocks included
in the recapture of the life insurance block. Effective December 31, 1995,
NAIL and Maryland Southern Life Insurance Company (MSLIC) entered into a
coinsurance agreement whereby MSLIC assumed 80% of all the life insurance
business retained by NAIL. This agreement was terminated December 31, 1996
and the ceded business was recaptured by NAIL. This is a noncurring
transaction. Insurance companies use coinsurance and reinsurance to increase
their statutory capital.
This practice is more common in small insurance companies. The practice
provides additional statutory capital immediately, but also has a negative
impact on profits in the long run. The securities were sold in the second
quarter of 1997 for a profit. Other accounts receivable decreased by
$1,690,223 as a result of the reversal of the coinsurance transaction in
February 1997. Policy Benefit Reserves decreased by $339,039 due to a decrease
in the number and amount of policies. The reserves also decreased due to the
reduction in cash outflows, which is a component of reserves if the company
is losing money. The reduction in cash outflows resulted from the cost
reduction program.
In the first quarter of 1997, the Company's earnings per share were $.01 on
net income of $44,749, as compared to a loss per share in the first quarter of
1996 of $.11 on a loss of $385,430. Premium revenues exceeded the first
quarter of 1996 by $71,000, or 13%, due to recapture of the 80% coinsurance
from MSLIC in the first quarter of 1997. Policy claims and benefit reserves
additions were reduced by $130,000, or 41%, and salaries were reduced by 11%.
These improvements were due to outsourcing of operations and cost reduction
programs implemented by new management. Other operating expenses were reduced
by $149,000, or 48%.
Page 10 of 14
Results of Operations
1997 Compared to 1996
The Company had a net profit for the first three months of 1997 of $44,749
compared to a loss of $385,430 for the three months ended March 31, 1996.
The earnings per common share were $.01 for the first quarter of 1997 compared
to a loss of $.11 for the same period 1996. Total revenues in the first
quarter 1997 increased to $710,060 from $682,700 in 1996. Premium revenues
increased to $605,151 in the first quarter 1997 from $533,919 in 1996.
Three months ended March 31,
_____________________________
1997 1996
Life premium $ 185,476 $ 259,762
Life reinsurance premiums (1,711) (151,490)
A & H premiums 480,292 497,062
A & H reinsurance premiums (58,906) (71,415)
______________________
Total premium revenues $ 605,151$ 533,919
======================
Although total premiums increased, life premiums declined as a result of
continuing lapses of FLA-100 policies. The Company ceased paying projected
dividends on these policies in 1992 when the Board of Directors determined the
projected dividend to be excessive. This action has caused the lapse rate of
these policies to increase.
The increase in the accident and health (A&H) premium is the result of adding
additional members to the New Mexico group business. Management expects the
number of lives covered to increase by 25% to 30% in 1997. The Company is
applying for a 30% rate increase, which would be effective September 1, 1997,
and an additional 7% premium increase for added benefits. Management expects
that with this combination of increases in rates and lives covered, A&H
premiums will grow by approximately 175% in the year following the rate
increase.
Net investment income decreased to $60,702 as of March 31, 1997 as compared to
$135,608 at March 31, 1996. This decrease was due to capital gains realized
from the sale of assets in connection with a coinsurance transaction in the
first quarter of 1996.
The Company's claims and other benefits increased to $535,062 for the first
quarter of 1997 from $333,562 for the first quarter of 1996. The increase is
the result of the claims incurred on the New Mexico policies described above.
These claims were due to seven extraordinary cases including several leukemia
cases and several premature births. Reinsurance covered a portion of the costs.
Only one case of this magnitude occurred in the six years previous to this
period. This unusual number of claims is not expected to occur again in future
periods. The composition of benefits and claims and policyholder dividends for
the three months ending March 31 are as follows:
Page 11 of 14
Three months ended March 31,
______________________________
1997 1996
Life benefits $ 141,123 $ 29,137
A & H benefits 393,939 304,425
___________ _________
Total benefits $ 535,062 $ 333,562
=========== =========
Commission expense decreased to $57,954 for the first three months of 1997
from $85,326 for the first three months of 1996, primarily as a result of
decreased sales of life policies. The composition of commission expense was
as follows:
Three months ended March 31,
______________________________
1997 1996
Life commissions $ 8,118 $ 55,817
A & H commissions 49,836 29,509
____________ ____________
Total $ 57,954 $ 85,326
============ ============
Salaries and other operating expenses decreased to $326,710 in the first
quarter of 1997 from $495,061 in 1996. The Company expects additional decreases
in salaries and other operating expenses during the remainder of 1997. The
Company has moved its offices and decreased its rent, utility and maintenance
costs. The Company has downsized its staff by 76% and outsourced its computer
and policy administrative services. These changes are expected to result in a
further decrease in these expenses in 1997. Management is continuing to
evaluate operations to further reduce operating costs.
Conseco Capital Management (CCM), an asset management company with $29 billion
of assets under management, has been contracted to manage the assets of the
Company. This conversion will be completed prior to July 31, 1997. Based on
CCM's historical record of investing assets, the Company expects to see an
improvement in its investment income.
Deferred policy acquisition costs decreased to $89,939 for the first three
months of 1997 as compared to $157,914 for the first three months of 1996.
The lapse of FLA-100 policies is still causing a decrease in deferred
acquisition costs. The decrease in deferred acquisition costs is allocated
between life and health as follows:
Three months ended March 31,
1997 1996
Life $ 53,908 $ 103,607
A & H 36,031 54,307
___________ ___________
Total $ 89,939 $ 157,914
=========== ===========
Page 12 of 14
Liquidity and Capital Resources
The liquidity requirements for the Company's operations generally arise from
the insurance operations of NAIL and the administrative activities of NAC, and
include payment of claims to policyholders, payment of commissions and other
costs of acquiring new policies, payment of operating costs, and payment of
cash values upon termination of policies. These demands have generally been
met by NAIL with funds generated by its operations, from its reserves and
liquid assets, and from capital contributions by NAC. NAC has funded its
operations primarily through management fees charged to its subsidiaries,
including NAIL. NAIL is prohibited by Louisiana law from paying dividends to
NAC other than from statutory profits.
Statutory losses in the previous six years by NAIL have had a substantial
negative impact on the amount of its surplus. Due to the decline in surplus
and continual operating losses, NAIL was notified during 1996 that its licenses
were suspended in the states of Alabama, Tennessee and Wyoming. With the
stock purchase by The Southern Group, the Company contributed $2,766,913 to
NAIL's surplus at December 31, 1996. After a review by the Louisiana Insurance
Department ("Insurance Department") the Company agreed to repurchase a
$475,000 mortgage included in The Southern Group contribution in NAIL by
selling this asset to an affiliate for cash. According to the statutory
statement filed, The Southern Group stock purchase enabled NAIL to end 1996
with $2,669,157 in capital and surplus. The latest liquidity test published
by A.M. Best Insurance Reports rates NAIL's Current Liquidity as 123%. The
usual range stated by Best for this test is 95% to 120%.
NAIL's Quick Liquidity, which measures the portion of liabilities covered by
cash and quickly convertible investments, is 56.8% while the usual range is 10%
to 20%.
Acquisition of Life Insurance Companies
The Company's business plans will focus on growth through the acquisition and
consolidation of other small life insurance companies. The Company plans to
seek to acquire undervalued life insurance companies in the $2 million to $50
million equity range. The acquisitions are expected to be made through a joint
venture with The Southern Group. This acquisition strategy will require
acquisition candidates, evaluation, acquisition finance, and regulatory
approvals. The Southern Group has implemented a program of identifying
potential acquisition candidates and the Company intends to review acquisition
opportunities presented by The Southern Group.
The Southern Group signed a strategic alliance with CCM to provide assistance
in the evaluation of the assets of target life insurance companies during the
due diligence phase. CCM has done a full evaluation of acquisition candidates
and will continue to do so in the future.
Page 13 of 14
EXHIBIT 11
NATIONAL AFFILIATED CORPORATION AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
The weighted average number of shares outstanding for the three months ended
March 31, 1997 wascomputed as follows:
Shares outstanding, beginning of period 8,740,915
Shares issued, first quarter, 1997 24,500
Shares outstanding, end of period 8,765,415
8,740,915 + 8,765,415 = 8,753,165
_____________________
2
Page 14 of 14
