UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM 10-Q
[Mark One]
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________to
____________.
Commission File No. 0-19727
CUMBERLAND TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-3094503
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-- (State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4311 West Waters Avenue, Suite 501
Tampa, Florida 33614
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--
(Address of principal executive office) (Zip Code)
(813) 885-2112
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed
since last report)
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
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
Indicate by a check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the<PAGE>
distribution of securities under a plan confirmed by a court.
Yes [X] No [ ]<PAGE>
Applicable Only to Corporate Issuers
The number of shares of the Registrant's common stock, $.001 par
value, outstanding as of June 30, 1997 was 5,763,070 shares.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
FORM 10-Q
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Condensed consolidated balance sheets
at December 31, 1996
and June 30, 1997 . . . . . . . . . . 1-2
Condensed consolidated statements of
operations for the six months ended
June 30, 1996 and June 30, 1997. . . . . 3
Condensed consolidated statements
of operations for the three months
ended June 30, 1996 and June 30, 1997. . 4
Condensed consolidated statements of cash
flows for the six months ended
June 30, 1996 and 1997 . . . . . . . . . 5
Notes to condensed consolidated
financial statements . . . . . . . . . 6-9
Item 2. Management's Discussion and Analysis
of financial condition and
results of operations . . . . . . . . . 10-12
PART II OTHER INFORMATION
Item 1. Legal proceedings . . . . . . . . . . 13
Item 2. Changes in securities . . . . . . . . 13
Item 3. Defaults upon senior securities . . . 13
Item 4. Submission of matters to a vote
of security holders . . . . . . . . 13
Item 5. Other information . . . . . . . . . . 13
Item 6. Exhibits and Reports of Form 8-K . . . 13
Signatures . . . . . . . . . . . . . . 14<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1996 1997
-------------- --------------
(Unaudited)
ASSETS
------
Investments:
Securities available-for-
sale at fair value:
Fixed maturities . . . . . $ 3,055,753 $ 3,177,579
Equity securities . . . . 1,020,016 1,204,250
Fixed maturity securities
held-to-maturity, at
amortized cost . . . . . . 1,664,264 1,248,493
Residential mortgage loan on
real estate, at unpaid
principal . . . . . . . . 45,838 45,374
Short-term investments . . 323,993 323,993
----------------------------
Total investments . . . . 6,109,864 5,999,689
Cash and cash equivalents 669,076 790,653
Accrued investment income 89,652 77,746
Reinsurance recoverable . . 987,953 1,033,257
Accounts receivable:
Trade . . . . . . . . . . 906,530 1,275,765
Affiliate . . . . . . . . 18,006 811,859
Deferred policy acquisition
costs . . . . . . . . . . 635,189 967,549
Intangibles, net . . . . . 1,956,724 1,818,242
Other assets . . . . . . . 396,442 202,764
----------------------------
$ 11,769,436 $ 12,977,524
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1996 1997
-------------- --------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS'
EQUITY
-----------------------------
Policy liabilities and accruals:
Loss and loss adjustments
expenses . . . . . . . . . $ 1,991,796 $ 2,183,128
Unearned premiums . . . . . 1,862,114 2,962,694
Ceded reinsurance payable . . . 165,504 -
Accounts payable and other
liabilities . . . . . . . . 403,085 871,970
Long-term debt:
Nonaffiliate . . . . . . . 1,533,265 1,478,965
----------------------------
Total liabilities . . . . 5,955,764 7,496,757
Stockholders' equity:
Preferred stock, $.001 par
value; 10,000,000 shares
authorized, no shares
issued . . . . . . . . . . - -
Common stock, $.001 par
value; 10,000,000 shares
authorized, 5,763,070
shares issued at December
31, 1996 and June 30, 1997,
respectively . . . . . . . 5,763 5,763
Capital in excess of par
value . . . . . . . . . . 7,212,941 7,212,941
Net unrealized appreciation
of available-for-sale
securities . . . . . . . . 99,676 96,633
Accumulated deficit . . . . (1,263,937) (1,584,352)
----------------------------
6,054,443 5,730,985
Less treasury stock, at cost,
310,473 and 313,612 shares
at December 31, 1996 and
June 30, 1997, respectively (240,771) (250,218)
----------------------------
Total stockholders' equity 5,813,672 5,480,767
----------------------------
$ 11,769,436 $ 12,977,524
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30,
-----------------------------
1996 1997
-------------- --------------
(Unaudited) (Unaudited)
REVENUES:
--------
Reinsurance premiums assumed $ 1,664,181 $ 190,569
Direct premiums earned:
Affiliates . . . . . . . . - -
Nonaffiliates . . . . . . 436,630 1,553,645
Less reinsurance ceded . . (154,885) (217,604)
----------------------------
Net premium income . . . . 1,945,926 1,526,610
Net investment income . . . 185,311 197,864
Net realized investment gains 51,429 79,477
Commission income . . . . . 706,739 912,388
Other income . . . . . . . 319,393 322,062
-------------- -------------
3,208,798 3,038,401
Benefits and expenses:
Benefits and claims . . . . 753,923 420,059
Amortization of deferred
policy acquisition costs 878,660 885,415
Operating expenses . . . . 1,551,213 1,991,431
Interest expense:
Affiliates . . . . . . . . 244,944 -
Nonaffiliates . . . . . . 60,094 61,911
----------------------------
3,488,834 3,358,816
----------------------------
Loss before income taxes . . . (280,036) (320,415)
Income taxes (benefit) . . . . - -
Net loss . . . . . . . . . . . $ (280,036)$ (320,415)
Weighted average number of
shares . . . . . . . . . . 3,796,375 4,131,225
----------------------------
Net loss per share . . . . . . $ (.07)$ (.08)
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30,
-----------------------------
1996 1997
-------------- --------------
(Unaudited) (Unaudited)
REVENUES:
--------
Reinsurance premiums assumed $ 825,625 $ 8,559
Direct premiums earned:
Affiliates . . . . . . . . - -
Nonaffiliates . . . . . . 231,093 882,528
Less reinsurance ceded . . (75,259) (143,473)
----------------------------
Net premium income . . . . 981,459 747,614
Net investment income . . . 86,361 103,713
Net realized investment gains 41,668 33,994
Commission income . . . . . 374,814 489,285
Other income . . . . . . . 164,635 169,317
----------------------------
1,648,937 1,543,923
Benefits and expenses:
Benefits and claims . . . . 423,001 127,779
Amortization of deferred
policy acquisition costs 429,825 437,258
Operating expenses . . . . 772,717 977,694
Interest expense:
Affiliates . . . . . . . . 123,997 -
Nonaffiliates . . . . . . 29,384 32,107
----------------------------
1,778,924 1,574,838
----------------------------
Loss before income taxes . . . (129,987) (30,915)
Income taxes (benefit) . . . . - -
Net Loss . . . . . . . . . . . $ (129,987)$ (30,915)
============================
Weighted average number of
shares . . . . . . . . . . 3,796,375 4,131,225
============================
Net loss per share . . . . . . $ (.03)$ (.01)
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
-----------------------------
1996 1997
-------------- --------------
(Unaudited) (Unaudited)
Operating activities:
--------------------
Net income loss . . . . . . . . $ (280,036)$ (320,415)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization/accretion of
investment premiums and
discounts . . . . . . . . (5,882) (1,641)
Policy acquisition costs
amortized . . . . . . . . (878,660) (885,415)
Policy acquisition costs
deferred . . . . . . . . . 861,655 553,055
Depreciation and amortization 188,962 138,483
Net realized (gain) loss on
sales of investments . . . (51,429) (79,477)
Accrued interest on term
notes, net . . . . . . . . 260,438 61,911
(Increase) decrease in:
Accrued investment income (7,376) 11,906
Reinsurance recoverable . 348,378 (210,808)
Trade receivables . . . . (449,850) (905,233)
Other assets . . . . . . . (76,700) 193,678
Increase (decrease) in:
Policy liabilities and
accruals . . . . . . . (388,858) 1,291,912
Ceded reinsurance payable - -
Accounts payable and other
liabilities . . . . . . 260,425 468,884
----------------------------
Total adjustments . . . . . . . 61,103 637,255
----------------------------
Net cash used in operating
activities . . . . . . . . (218,933) 316,840
Investing activities:
Securities available-for-sale :
Purchases - fixed maturities (300,012) (736,063)
Sales - fixed maturities . 495,000 599,039
Purchases - equities . . . (1,673,111) (2,057,018)
Sales - equities . . . . . 987,811 1,956,312
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Six Months Ended June 30,
-----------------------------
1996 1997
-------------- --------------
(Unaudited) (Unaudited)
Securities held-to-maturity:
Purchases . . . . . . . . . (680,116) (299,483)
Maturities . . . . . . . . . 310,000 725,000
Proceeds from purchases and
maturities of other
investments . . . . . . . . (14,742) 464
Net advances from KC . . . . . - (257,855)
----------------------------
Net cash (used in) provided by
investing activities . . . . (875,170) (69,604)
Financing activities:
Purchases of treasury stock . . (68,593) (9,448)
Payments on short-term
borrowings and long-term
debt . . . . . . . . . . . . (54,302) (116,211)
Net proceeds from short-term
borrowings . . . . . . . . . 457,194 -
----------------------------
Net cash (used in) provided by
financing activities . . . . 334,299 (125,659)
----------------------------
Increase (decrease) in cash and
cash equivalents . . . . . . (759,804) 121,577
Cash and cash equivalents,
beginning of period . . . . . 1,235,930 993,069
----------------------------
Cash and cash equivalents, end $ 476,126 $ 1,114,646
of period . . . . . . . . . . ============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
1. Summary of Significant Accounting Policies
------------------------------------------
Organization - Cumberland Holdings, Inc. ("CHI"), a Florida
corporation, was formed on November 18, 1991, to be a
holding company and a wholly-owned subsidiary of Kimmins
Corp. ("KC"). Effective October 1, 1992, KC contributed all
of the outstanding common stock of two of its other wholly-
owned subsidiaries, Cumberland Casualty & Surety Company
("CCS") and Surety Specialists, Inc. ("SSI") to CHI. KC then
distributed to its stockholders CHI s common stock on the
basis of one share of common stock of CHI for each five
shares of KC common stock and Class B common stock owned
(the Distribution). Effective January 30, 1997 Cumberland
Holdings, Inc. changed its name to Cumberland Technologies,
Inc. ("CTI"). CTI conducts its business through seven
subsidiaries. CCS, a Florida corporation formed in May 1988,
provides reinsurance for specialty sureties and performance
and payment bonds for contractors. The surety services
provided include direct surety and to a lesser extent,
reinsurance. SSI, a Florida corporation formed in August
1988, is a general lines agency which operates as an
independent agent. Surety Group (SG), a Georgia corporation,
and Associates Acquisition Corp. d/b/a Surety Associates
(SA), a South Carolina corporation, purchased in February
and July 1995, respectively, are general lines agencies
which operate as independent agencies. Official Notary
Service of Texas, Inc. (ONS), a Texas corporation formed in
February 1994, provides registration and sundry services to
notaries. Qualex Consulting Group, Inc. (Qualex), a Florida
corporation formed in November 1994, provides claim and
contracting consulting services. Florida Credit &
Collection Services, Inc. a Florida corporation formed in
December 1996 provides credit and collections services. CTI
and its subsidiaries are referred to herein as the Company.
Principles of Consolidation - The consolidated financial
statements include the accounts of CTI and its wholly-owned
subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
1. Summary of Significant Accounting Policies (continued)
------------------------------------------------------
Basis of Presentation - The accompanying consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles which, as to the
subsidiary insurance company, differ from statutory
accounting practices prescribed or permitted by regulatory
authorities. The significant accounting policies followed by
CTI and subsidiaries that materially affect the financial
statements are summarized in this note.
Reclassifications - Certain amounts in the 1996 financial
statements have been reclassified to conform to the 1997
financial statement presentations.
2. Net Income Per Share
--------------------
Net income per share for the three and six months ended June
30, 1997 is based on the weighted average number of shares
outstanding, adjusted for the dilutive effect of stock
options, and is the same on both a primary and fully diluted
basis.
3. Term Note Due Affiliate
-----------------------
In 1988, CCS issued a surplus debenture to KC in exchange
for $3,000,000 which bears interest at 10 percent per annum.
Interest and principal payments are due quarterly only if
and when CCS s surplus, as defined below, exceeds $4,000,000
and are limited to an amount equal to one-half of the
statutory net income before dividends and federal and
foreign income taxes of CCS during that year. In 1992, the
debenture due to KC from CCS was assigned to CTI. As of
December 31, 1996, no amounts could be paid by CCS to CTI
under the terms of the debenture.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
3. Term Note Due Affiliate (continued)
-----------------------------------
In addition, in 1992, CTI entered into a term note agreement
with KC for the outstanding amount of the debenture,
including interest arrearage ($4,291,049) at September 30,
1992 as part of the distribution. The term note was pari
passi with the other debts of CCS, bearing interest at 10
percent of the unpaid principal and interest and was due on
October 1, 2002. Interest and principal were due quarterly
with minimum payments equal to one half of net earnings
before interest and federal income taxes. Effective October
1, 1996, the term note was converted to equity at a rate of
$3.00 per share.
The term note was subordinate in right of payment to all
policyholders of CCS. Surplus funds are defined as funds CCS
has remaining after deduction of capital, insurance reserves
and all other liabilities, in accordance with accounting
practices prescribed or permitted by the Florida Insurance
Department.
Effective October 1, 1996, CTI issued 1,723,290 shares at
the fair value of $3.00 per share of its common stock to
Kimmins Corp. (f/k/a Kimmins Environmental Service, Corp.)
in exchange for surrender of the Company's term note payable
in the amount of $5,169,870.
On April 1, 1997, CTI, forgave $375,000 of its $3,000,000
surplus debenture due to CCS. As a result, CCS increased
paid in capital by $375,000.
4. Notes Payable to Nonaffiliates
------------------------------
In connection with the acquisition of certain agencies
during 1995 (see Note 9), the Company entered into two notes
payable with the agencies previous owners. One note is due
March 1, 2002 and bears interest at 8% through February 28,
2001 and 10% thereafter. Principal payments of $150,000 are
due annually beginning March 1, 2000. The other is due
June 30, 2010 and bears interest at 8% through June 30, 1999
and 9% thereafter. Principal payments of $40,000 are due
annually for three years beginning January 5, 1996.
Principal and interest payments at 9% of $11,104 are due
monthly beginning April 1, 1997.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
5. Intangibles
-----------
Intangible assets are stated at cost and principally
represent purchased customer accounts, noncompete
agreements, purchased contract agreements, and the excess of
costs over the fair value of identifiable net assets
acquired (goodwill). Purchased customer accounts, noncompete
agreements, and purchased contract agreements are being
amortized on a straight-line basis over the related
estimated lives and contract periods, which range from 3 to
15 years. The excess of costs over the fair value of
identifiable net assets acquired is being amortized on a
straight-line basis over 15 years. Purchased customer
accounts are records and files obtained from acquired
businesses that contain information on insurance policies
and the related insured parties that is essential to policy
renewals.
The carrying value of goodwill and other intangible assets
will be reviewed if circumstances suggest that they may be
impaired. If this review indicates that the intangible
assets will not be recoverable, as determined based on the
undiscounted cash flows of the entity acquired over the
remaining amortization period, the Company s carrying value
of the goodwill will be reduced by the estimated shortfall
of cash flows.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
6. Loss and Loss Adjustment Expenses
---------------------------------
The liability for unpaid claims including incurred but not
reported losses is based on the estimated ultimate cost of
settling the claim (including the effects of inflation and
other societal and economic factors), using past experience
adjusted for current trends and any other factors that would
modify past experience. These estimates are subject to the
effects of trends in loss severity and frequency. Although
considerable variability is inherent in such estimates,
management believes that the reserves for loss and loss
adjustment expenses are adequate. The estimates are
continually reviewed and adjusted as necessary as experience
develops or new information becomes known. Such adjustments
are included in current operations. A liability for all
costs expected to be incurred in connection with the
settlement of unpaid claims (claim adjustment expense) is
accrued when the related liability for unpaid claims is
accrued. Claim adjustment expenses include costs associated
directly with specific claims paid or in the process of
settlement, such as legal and adjusters fees. Claim
adjustment expenses also include other costs that cannot be
associated with specific claims but are related to claims
paid or in the process of settlement, such as internal costs
of the claims function.
The Company does not discount its reserves for losses and
loss adjustment expenses. The Company writes primarily
surety contracts which are of short duration.
The Company does not consider investment income in
determining if a premium deficiency relating to short
duration contracts exists.
7. Unearned Premiums
-----------------
Unearned premiums are calculated using the monthly pro rata
basis.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
8. Reinsurance
-----------
The Company assumes and cedes reinsurance and participates
in various pools. The accompanying financial statements
reflect premiums, benefits and settlement expenses, and
deferred policy acquisition costs, net of reinsurance ceded.
Amounts recoverable from reinsurers are estimated in a
manner consistent with the future policy benefit and claim
liability associated with the reinsured policies.
Accounts recoverable from reinsurers are presented as an
asset in the accompanying consolidated financial statements.
9. Acquisitions
------------
Effective February 28, 1995, the Company acquired
substantially all of the assets of The Surety Group, a
Georgia insurance agency specializing in the sales of surety
bond policies. The purchase price of $850,000 is comprised
of $325,000 paid at closing, the assumption of $25,000 of
capital lease obligations and a $500,000 note payable to the
seller. The purchase agreement provides that the purchase
price may be reduced, but not increased, based on the
agency s operating results during the three-year period
ending February 28, 1998.
Effective July 1, 1995, the Company acquired all of the
assets of Surety Associates, Inc., a South Carolina
insurance agency specializing in the sales of surety bond
and certain types of property and casualty insurance
policies. The purchase price of $1,330,241 is comprised of
$180,241 paid at closing, and a $1,150,000 note payable to
the seller.
Both acquisitions have been accounted for using the purchase
method. The results of operations of the acquired entities
have been included in the accompanying consolidated
statements of operations since their respective purchase
date.
The effects of the acquired assets have been excluded from
the accompanying consolidated statements of cash flows.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The capacity of a surety company to underwrite insurance and
reinsurance is based on maintaining liquidity and capital
resources sufficient to pay claims and expenses as they become
due. Based on standards established by the National Association
of Insurance Commissioners (NAIC) and promulgated by the Florida
Department of Insurance, the Company is permitted to write
premiums up to an amount equal to three times its statutory
surplus, or approximately $15,000,000 at June 30, 1997,
respectively. Therefore, based upon statutory guidelines, the
Company could increase earned premiums by approximately
$11,000,000 in 1997 in addition to the amount earned in 1996. The
primary sources of liquidity for the Company are funds generated
from surety premiums, investment income, and proceeds from sales
and maturities of portfolio investments. The principal
expenditures are payment of losses and loss adjustment expenses,
insurance operating expenses, and commissions.
At June 30, 1997, the Company s $12,977,524 of total assets
calculated based on generally accepted accounting principles were
distributed primarily as follows: 53 percent in cash and
investments (including accrued investment income), 24 percent in
receivables and reinsurance recoverables, 21 percent in
intangibles and deferred policy acquisition costs and 2 percent
in other assets.
The Company maintains a liquid operating position and
follows investment guidelines that are intended to provide an
acceptable return on investment while maintaining sufficient
liquidity to meet its obligations.
Net cash used in operating activities was $(218,933) and
$316,840 for the six months ended June 30, 1996 and 1997,
respectively. In 1996 the cash used in operating activities was
primarily attributable to payments of claims and reinsurance,
which offset in part by a decrease in accounts receivable. Net
cash provided in operating activities during 1997 is a result of
an increase in policy liability accruals which is offset by an
increase in reinsurance, trade receivables and policy acquisition
costs.
Net cash (used in) provided by investing activities was
$(875,170) and $(69,604) for the six months ended June 30, 1996,
and 1997, respectively. Investing activities consist of
purchases and sales of investments.<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
(Continued)
KC and Cumberland entered into a term note agreement
evidencing the balance of the surplus debenture which was due KC
from CCS. The surplus debenture, as well as all accrued interest,
has been assigned to Cumberland.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
----------------------
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
During the six months ended June 30, 1997, net premium
income totaled $1,526,610 representing a decrease of 22 percent
from that of the same period in 1996 ($1,945,926). The decrease
is due to the discontinuation of the Pooling Agreements and
implementing marketing of direct premiums. During the first six
months of 1997 as compared to the same period during 1996,
assumed premiums decreased $1,482,171 (89%) and direct premiums
increased $1,117,015 (256%).
Net investment income for the second quarter of 1997 as
compared to the same period during 1996 reflect no significant
changes. Net realized gains during 1997 were $28,045 higher than
realized gains for the same period of 1996. Commission and other
income increased by $208,318 or 20% during the first six months
of 1997 when compared to 1996.
During the six months ended June 30, 1997 and 1996, benefits
and claims expenses decreased $333,864 or 44.3%. The decrease is
attributed to the discontinuation of the pooling agreements in
1997. Benefits and claims represented in prior periods were
calculated at 40% of the pooling agreement premiums.
During the six months ended June 30, 1997, the amortization
of deferred policy acquisition costs remained consistent when
compared to the same period during 1996.
Operating expenses increased during the six months ended
June 30, 1997 by $440,218 when compared to the six months ended
June 30, 1996. The increase is attributed to expenses associated
with the Company's marketing strategy and effort to enter into
the direct premium market of the surety business. As a result,
payroll increased by approximately $317,400, travel by $37,800
and general office expenses by $69,300. Direct written premiums
are $2,829,346 and $566,872 for June 30, 1997 and 1996,
respectively.
Net interest expense decreased by $243,127 in 1997 and is a
result of conversion of the affiliated term note to equity on
October 1, 1996.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
----------------------------------------------
RESULTS OF OPERATIONS
---------------------
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 AND 1996
During the three months ended June 30, 1997, net premium income
totaled $747,614 representing a decrease of 24 percent from that
of the same period in 1996 ($981,459). The decrease is due
primarily to the decrease in the amount of premiums assumed
through the pooling agreements of approximately $817,066 and is
offset by an increase of $651,435 in direct premiums earned.
During the three months ended June 30, 1997, net investment
income of $137,707 increased by 7.5% percent from that in 1996
($128,029).
During the three months ended June 30, 1997, other income of
$658,602 increased by 22 percent from $539,449 in 1996, and is
attributed to commission income earned from increased business
written by the agencies purchased during 1995.
During the three months ended June 30, 1997, benefits and
claims expenses decreased to $127,779 from $423,001 from that of
the same period in 1996. The decrease is due primarily to a
decrease in benefits and claims associated with the reinsure
pooling agreements.
During the three months ended June 30, 1997, the
amortization of deferred policy acquisition costs remained
consistent when compared to the same period during 1996.
During the three months ended June 30, 1997, operating
expenses increased $204,977 when compared to the three months
ended June 30, 1996. The increase is attributed to operating
expenses associated with the direct marketing operations of the
insurance company.
Net interest expense decreased by $121,274 when compared to
the same period during 1996 and is a direct result of the
conversion of the affiliated term note to equity on October 1,
1996.<PAGE>
PART II - OTHER INFORMATION
--------------------------
Item 1. Legal proceedings
None
Item 2. Changed in securities
None
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) None
Exhibit 27 - Financial Data Schedule
(for SEC use only)
(b) No reports on Form 8-K were filed during the
quarter for which this report is filed.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
CUMBERLAND TECHNOLOGIES, INC.
Date: August 14, 1997 By: /s/Joseph M. Williams
------------------------------
Joseph M. Williams
President and
Chief Executive Officer
(Principle Executive Officer)
Date: August 14, 1997 By: /s/Carol S. Black
------------------------------
Carol S. Black
Secretary and
Chief Financial Officer
(Principle Accounting and
Financial Officer)<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 3,177,579
<DEBT-CARRYING-VALUE> 1,248,493
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,204,250
<MORTGAGE> 45,374
<REAL-ESTATE> 0
<TOTAL-INVEST> 5,999,689
<CASH> 1,114,646
<RECOVER-REINSURE> 1,033,257
<DEFERRED-ACQUISITION> 967,549
<TOTAL-ASSETS> 12,977,524
<POLICY-LOSSES> 2,183,128
<UNEARNED-PREMIUMS> 2,962,694
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 1,478,965
0
0
<COMMON> 5,763
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,977,524
1,526,610
<INVESTMENT-INCOME> 197,864
<INVESTMENT-GAINS> 79,477
<OTHER-INCOME> 1,234,450
<BENEFITS> 420,059
<UNDERWRITING-AMORTIZATION> 885,415
<UNDERWRITING-OTHER> 2,053,342
<INCOME-PRETAX> (320,415)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (320,415)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
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<CUMULATIVE-DEFICIENCY> 0
</TABLE>
