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 September 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<PAGE>
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
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 September 30, 1997 was 5,736,070 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 September 30, 1997 . . . . . . . . 1-2
Condensed consolidated statements of
operations for the nine months ended
September 30, 1996 and
September 30, 1997. . . . . . . . . . . . 3
Condensed consolidated statements
of operations for the three months
ended September 30, 1996 and
September 30, 1997. . . . . . . . . . . . 4
Condensed consolidated statements of
cash flows for the nine months ended
September 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, September 30,
1996 1997
-------------- --------------
(Unaudited)
ASSETS
------
Investments:
Securities available-for-
sale at fair value:
Fixed maturities . . . . . $ 3,055,753 $ 3,184,420
Equity securities . . . . 1,020,016 1,105,930
Fixed maturity securities
held-to-maturity, at
amortized cost . . . . . . 1,664,264 982,019
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 5,641,736
Cash and cash equivalents 669,076 1,920,216
Accrued investment income 89,652 75,770
Reinsurance recoverable . . 987,953 987,201
Accounts receivable:
Trade . . . . . . . . . . 906,530 1,642,932
Affiliate . . . . . . . . 18,006 255,216
Deferred policy acquisition
costs . . . . . . . . . . 635,189 747,402
Intangibles, net . . . . . 1,956,724 1,749,437
Other assets . . . . . . . 396,442 218,342
----------------------------
$ 11,769,436 $ 13,238,252
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1996 1997
-------------- --------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS'
EQUITY
--------------------------------
Policy liabilities and accruals:
Loss and loss adjustments
expenses . . . . . . . . . $ 1,991,796 $ 3,023,113
Unearned premiums . . . . . 1,862,114 2,462,240
Ceded reinsurance payable . . . 165,504 254,146
Accounts payable and other
liabilities . . . . . . . . 403,085 455,264
Long-term debt:
Nonaffiliate . . . . . . . 1,533,265 1,441,226
----------------------------
Total liabilities . . . . 5,955,764 7,635,989
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 September 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 58,885
Accumulated deficit . . . . (1,263,937) (1,425,108)
----------------------------
6,054,443 5,852,481
Less treasury stock, at cost,
310,473 and 313,612 shares
at December 31, 1996 and
September 30, 1997,
respectively . . . . . . . (240,771) (250,218)
----------------------------
Total stockholders' equity 5,813,672 5,602,263
----------------------------
$ 11,769,436 $ 13,238,252
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September
30,
-----------------------------
1996 1997
-------------- --------------
(Unaudited) (Unaudited)
REVENUES:
--------
Reinsurance premiums assumed $ 2,179,218 $ 807,633
Direct premiums earned:
Affiliates . . . . . . . . - -
Nonaffiliates . . . . . . 733,859 3,981,294
Less reinsurance ceded . . (203,254) (1,057,788)
----------------------------
Net premium income . . . . 2,709,823 3,731,139
Net investment income . . . 278,824 297,892
Net realized investment gains 25,933 207,781
Commission and other income 1,627,910 1,964,945
----------------------------
4,642,490 6,201,757
Benefits and expenses:
Benefits and claims . . . . 1,006,518 1,355,867
Amortization of deferred
policy acquisition costs 1,163,103 2,017,661
Operating expenses . . . . 2,476,285 2,895,517
Interest expense:
Affiliates . . . . . . . . 372,066 -
Nonaffiliates . . . . . . 90,720 93,883
----------------------------
5,108,692 6,362,928
----------------------------
Loss before income taxes . . . (466,202) (161,171)
Income taxes (benefit) . . . . - -
----------------------------
Net loss . . . . . . . . . . . $ (466,202)$ (161,171)
============================
Weighted average number of
shares . . . . . . . . . . 3,776,172 5,449,538
============================
Net loss per share . . . . . . $ (.12)$ (.03)
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September
30,
-----------------------------
1996 1997
-------------- --------------
(Unaudited) (Unaudited)
REVENUES:
--------
Reinsurance premiums assumed $ 515,037 $ 617,064
Direct premiums earned:
Affiliates . . . . . . . . - -
Nonaffiliates . . . . . . 297,229 2,427,649
Less reinsurance ceded . . (48,369) (840,184)
----------------------------
Net premium income . . . . 763,897 2,204,529
Net investment income . . . 68,018 100,028
Net realized investment gains - 128,304
Commission income . . . . . - -
Other income . . . . . . . 601,777 730,495
----------------------------
1,433,692 3,163,356
Benefits and expenses:
Benefits and claims . . . . 252,595 935,808
Amortization of deferred
policy acquisition costs 311,239 1,132,246
Operating expenses . . . . 898,276 904,086
Interest expense:
Affiliates . . . . . . . . 127,122 -
Nonaffiliates . . . . . . 30,626 31,972
----------------------------
1,619,858 3,004,112
----------------------------
Loss before income taxes . . . (186,166) 159,244
Income taxes (benefit) . . . . - -
----------------------------
Net Loss . . . . . . . . . . . $ (186,166)$ 159,244
============================
Weighted average number of 3,776,172 5,449,458
shares . . . . . . . . . . ============================
Net loss per share . . . . . . $ (.05)$ .03
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September
30,
-----------------------------
1996 1997
-------------- --------------
(Unaudited) (Unaudited)
Operating activities:
Net income loss . . . . . . . . $ (466,202)$ (161,171)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization/accretion of
investment premiums and
discounts . . . . . . . . (5,966) (2,917)
Policy acquisition costs
amortized . . . . . . . . (1,163,103) (2,017,661)
Policy acquisition costs
deferred . . . . . . . . 999,066 1,905,448
Depreciation and amortization 284,854 207,287
Net realized (gain) loss on
sales of investments . . (25,933) (207,781)
Accrued interest on term
notes, net . . . . . . . 395,986 93,883
(Increase) decrease in:
Accrued investment income 21,321 13,882
Reinsurance recoverable 582,753 89,394
Trade receivables . . . . (508,742) (736,402)
Other assets . . . . . . (76,310) 178,100
Increase (decrease) in:
Policy liabilities and
accruals . . . . . . . (490,008) 1,631,443
Ceded reinsurance payable - -
Accounts payable and other
liabilities . . . . . 107,618 52,179
----------------------------
Total adjustments . . . . . . . 121,536 1,206,855
----------------------------
Net cash used in operating
activities . . . . . . . . (344,666) 1,045,684
Investing activities:
Securities available-for-sale :
Purchases - fixed maturities (300,012) (736,054)
Sales - fixed maturities . 620,000 599,311
Purchases - equities . . . (2,201,859) (3,511,369)
Sales - equities . . . . . 2,427,619 3,600,174
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Nine Months Ended September
30,
-----------------------------
1996 1997
-------------- --------------
(Unaudited) (Unaudited)
Securities held-to-maturity:
Purchases . . . . . . . . . (680,116) (299,492)
Maturities . . . . . . . . 310,000 985,000
Proceeds from purchases and
maturities of other
investments . . . . . . . . 13,419 464
Net advances from affiliates - (237,210)
----------------------------
Net cash (used in) provided by
investing activities . . . 189,051 400,824
Financing activities:
Issuance of common stock . . . 24,949 -
Purchases of treasury stock . . (93,643) (9,447)
Payments on short-term
borrowings and long-term
debt . . . . . . . . . . . (54,302) (185,921)
Net proceeds from short-term
borrowings . . . . . . . . (406,607) -
----------------------------
Net cash (used in) provided by
financing activities . . . . (529,603) (195,368)
----------------------------
Increase (decrease) in cash and
cash equivalents . . . . . . . (685,218) 1,251,140
Cash and cash equivalents,
beginning of period . . . . . 1,235,930 993,069
----------------------------
Cash and cash equivalents, end $ 550,712 $ 2,244,209
of period . . . . . . . . . . ============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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 six
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. 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 nine months ended
September 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. 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.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
3. Term Note Due Affiliate
-----------------------
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.
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.
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
September 30, 2010 and bears interest at 8% through
September 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 September 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 September 30, 1997, the Company s $13,238,252 of total
assets calculated based on generally accepted accounting
principles were distributed primarily as follows: 58 percent in
cash and investments (including accrued investment income), 21
percent in receivables and reinsurance recoverables, 19 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 $(344,665) and
$1,045,684 for the nine months ended September 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 trade receivables and policy acquisition costs.
Net cash (used in) provided by investing activities was
$189,050 and $400,824 for the nine months ended September 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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
During the nine months ended September 30, 1997, net premium
income totaled $3,731,139 representing an increase of 38 percent
from that of the same period in 1996 ($2,709,823). The increase
was due to the discontinuation of the Pooling Agreements and
implementing marketing of direct premiums. During the first nine
months of 1997 as compared to the same period during 1996,
assumed premiums decreased $1,371,585 (63%) and direct premiums
increased $3,247,435 (443%).
Net investment income for the third quarter of 1997
increased $200,916 when compared to investment income for the
same period of 1996. The increase is attributed to $207,781 in
realized gains during 1997, an increase of $181,850 over realized
capital gains for the same period during 1996. Commission and
other income increased by $337,035 or 21% during the first nine
months of 1997 when compared to 1996.
During the nine months ended September 30, 1997 and 1996,
benefits and claims expenses decreased $349,349 or 35%. The
increase is attributed to the increase of direct premiums.
Benefits and claims represented in prior periods were calculated
at 40% of the pooling agreement premiums.
During the nine months ended September 30, 1997, the
amortization of deferred policy acquisition increased $854,558 or
73 percent when compared to the same period during 1996. The
increase is attributed to increased premiums written.
Operating expenses increased during the nine months ended
September 30, 1997 by $419,231 when compared to the nine months
ended September 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 $265,667, travel by
$46,456 general office expenses including rent, supplies, etc.,
increased by $82,237, and accounting and actuarial services
increased by $30,400. Direct written premiums are $3,981,294 and
$733,859 for September 30, 1997 and 1996, respectively.
Net interest expense decreased by $368,903 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 SEPTEMBER 30, 1997 AND 1996
During the three months ended September 30, 1997, net
premium income totaled $2,204,529 representing an increase of 189
percent from that of the same period in 1996 ($763,897). The
increase is attributed to the increase in direct premium of
$2,130,420 or 717 percent. This was offset by an increase in
ceded premiums of $791,815.
During the three months ended September 30, 1997, net
investment income of $100,028 increased by 47% percent from that
in 1996 ($68,018). The increase is a result of increased
earnings from equity securities and other invested assets.
Realized investment gains of $128,304 for the three months ending
September 30, 1997 increased investment income for the period to
$228,332.
During the three months ended September 30, 1997, other
income of $730,495 increased by 21 percent from $601,777 in 1996,
and is attributed to commission income earned from increased
business written by the agencies purchased during 1995.
During the three months ended September 30, 1997, benefits
and claims expenses increased to $935,808 from $252,595 when
compared to the same period in 1996. The increase is due
primarily to an increase in benefits and claims reserves
associated with the marketing of direct premiums.
During the three months ended September 30, 1997, the
amortization of deferred policy acquisition costs increased to
$1,132,246 from $311,239 when compared to the same period in
1996. The increase is due primarily to an increase in
amortization of deferred acquisition cost associated with the
direct premium written.
During the three months ended September 30, 1997, operating
expenses remained consistent when compared to the same period
during 1996
Net interest expense decreased by $125,776 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>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
----------------------------------------------
RESULTS OF OPERATIONS
---------------------
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(continued)
Net income for the three months ending September 30, 1997
was $159,245 as compared to a loss of $186,166 for the same
period in 1996. The positive results for the quarter is
attributed to increased direct written premium of $2,130,420,
realized capital gains and other income earned by the agencies
and claims consulting company that make up the Cumberland group.
Claims and benefits of $935,808 reflect the reserve increase and
amortization of deferred cost of $1,132,246 represent commission
expense, not deferred, on direct premiums written. Cumberland s
operating expenses of $904,086 for the third quarter of 1997 when
compared to the same period during 1996 ($898,276) shows only a
slight increase of 1 percent. Interest expense decreased due to
the note conversion 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: November 14, 1997 By: /s/Joseph M. Williams
------------------------------
Joseph M. Williams
President and
Chief Executive Officer
(Principle Executive Officer)
Date: November 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 3,184,420
<DEBT-CARRYING-VALUE> 982,019
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,105,930
<MORTGAGE> 45,374
<REAL-ESTATE> 0
<TOTAL-INVEST> 6,147,331
<CASH> 2,244,209
<RECOVER-REINSURE> 987,201
<DEFERRED-ACQUISITION> 747,402
<TOTAL-ASSETS> 13,238,252
<POLICY-LOSSES> 3,023,113
<UNEARNED-PREMIUMS> 2,462,240
<POLICY-OTHER> 254,146
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 1,441,226
0
0
<COMMON> 5,763
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,238,252
3,731,139
<INVESTMENT-INCOME> 297,892
<INVESTMENT-GAINS> 207,781
<OTHER-INCOME> 1,964,945
<BENEFITS> 1,355,867
<UNDERWRITING-AMORTIZATION> 2,017,661
<UNDERWRITING-OTHER> 2,895,517
<INCOME-PRETAX> (161,171)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (161,171)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
