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, 1998.
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 Identification
No.)
of incorporation)
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<PAGE>
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 [ ]
Applicable Only to Corporate Issuers
The number of shares of the Registrant's common stock, $.001 par
value, outstanding as of June 30, 1998 was 5,449,458 shares.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
FORM 10-Q
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Condensed consolidated balance sheets
at June 30, 1998
and December 31, 1997 . . . . . . . . 1-2
Condensed consolidated statements
of operations for the six months ended
June 30, 1998 and June 30, 1997. . . . . 3
Condensed consolidated statements
of operations for the three months ended
June 30, 1998 and June 30, 1997. . . . . 4
Condensed consolidated statements of
cash flows for the six months ended
June 30, 1998 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
June 30, December 31,
1998 1997
-------------- --------------
(Unaudited)
ASSETS
------
Investments:
Securities available-for-
sale at fair value:
Fixed maturities . . . . . $ 2,525,200 $ 3,590,458
Equity securities . . . . 1,356,475 1,526,783
Fixed maturity securities
held-to-maturity, at
amortized cost . . . . . . 859,599 982,528
Residential mortgage loan on
real estate, at
unpaid principal . . . . . 44,966 45,314
423,993 323,993
Short-term investments . . . . ----------------------------
Total investments . . . . 5,210,233 6,469,076
Cash and cash equivalents . . . 2,284,720 1,803,530
Accrued investment income . . . 53,595 82,821
Reinsurance recoverable . . . . 1,694,432 2,016,756
Accounts receivable:
Trade less allowances for
doubtful accounts of
$113,120 at June 30, 1998
and December 31, 1997 . . 1,919,300 1,307,216
Affiliate . . . . . . . . . 836,653 903,181
Deferred policy acquisition
costs . . . . . . . . . . . 1,165,367 812,745
Intangibles, net . . . . . . . 1,554,134 1,680,633
Other assets . . . . . . . . . 228,770 245,425
----------------------------
$ 14,947,204 $ 15,321,383
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30 December 31,
1998 1997
-------------- --------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS'
EQUITY
--------------------------------
Policy liabilities and accruals:
Loss and loss adjustments
expenses . . . . . . . . . $ 2,502,383 $ 2,550,300
Unearned premiums . . . . . 3,524,717 2,629,282
Ceded reinsurance payable . . . 627,349 2,459,173
Accounts payable and other 434,316 254,839
liabilities . . . . . . . .
Long-term debt . . . . . . . . 1,353,564 1,418,520
----------------------------
Total liabilities . . . . 8,442,329 9,312,114
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
June 30, 1998 and December
31, 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 . . . . . . . . (16,954) 134,201
Accumulated deficit . . . . (446,657) (1,093,418)
----------------------------
6,755,093 6,259,487
Less treasury stock, at cost,
313,612 shares at June 30,
1998 and December 31, 1997 (250,218) (250,218)
----------------------------
Total stockholders' equity 6,504,875 6,009,269
----------------------------
$ 14,947,204 $ 15,321,383
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30,
-----------------------------
1998 1997
-------------- --------------
(Unaudited) (Unaudited)
REVENUES:
Direct premiums earned . . 3,922,511 1,553,645
Reinsurance premiums assumed 488,968 190,569
Less reinsurance ceded . . (838,559) (217,604)
----------------------------
Net premium income . . . . 3,572,920 1,526,610
Net investment income . . . 213,144 197,864
Net realized investment gains 170,318 79,477
Other income:
Affiliates . . . . . . . . 126,862 244,605
Nonaffiliates . . . . . . 428,048 322,062
----------------------------
4,511,292 2,370,618
Benefits and expenses:
Losses and loss adjustment
expenses . . . . . . . . . 880,956 420,059
Amortization of deferred
policy acquisition costs . 757,907 217,632
Operating expenses . . . . 2,166,046 1,991,431
Interest expense . . . . . 59,622 61,911
----------------------------
3,864,531 2,691,033
----------------------------
Income (loss) before income
taxes . . . . . . . . . . . 646,761 (320,415)
Income taxes (benefit) . . . . - -
----------------------------
Net income (loss) . . . . . . . $ 646,761 $ (320,415)
============================
Weighted average number of
shares . . . . . . . . . . 5,449,458 4,131,225
============================
Net income (loss) per share . . $ .12 $ (.08)
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30,
-----------------------------
1998 1997
-------------- --------------
(Unaudited) (Unaudited)
REVENUES:
Direct premiums earned . . 2,119,901 882,528
Reinsurance premiums assumed 105,578 8,559
Less reinsurance ceded . . (391,017) (143,473)
----------------------------
Net premium income . . . . 1,834,462 747,614
Net investment income . . . 115,151 103,713
Net realized investment gains 104,141 33,994
Other income:
Affiliates . . . . . . . . 75,482 140,544
Nonaffiliates . . . . . . 254,554 169,317
----------------------------
2,383,790 1,195,182
Benefits and expenses:
Losses and loss adjustment
expenses . . . . . . . . . 528,536 127,779
Amortization of deferred
policy acquisition costs 392,447 88,517
Operating expenses . . . . 1,106,824 977,694
Interest expense . . . . . 29,715 32,107
----------------------------
2,057,522 1,226,097
----------------------------
Income (loss) before income
taxes . . . . . . . . . . . 326,268 (30,915)
Income taxes (benefit) . . . . - -
----------------------------
Net income (loss) . . . . . . . $ 326,368 $ (30,915)
============================
Weighted average number of
shares . . . . . . . . . . 5,449,458 4,131,225
============================
Net income (loss) per share . . $ .06 $ (.01)
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
-----------------------------
1998 1997
-------------- --------------
(Unaudited) (Unaudited)
Operating activities:
Net income (loss) . . . . . . . $ 646,761 $ (320,415)
Adjustments to reconcile net
income (loss) to net cash
(used in) provided by
operating activities:
Amortization/accretion of
investment premiums and
discounts . . . . . . . . (289) (1,641)
Policy acquisition costs
amortized . . . . . . . . (757,907) (885,415)
Policy acquisition costs
deferred . . . . . . . . 352,622 553,055
Depreciation and
amortization . . . . . . 126,499 138,483
Net realized (gain) on sales
of investments . . . . . (170,318) (79,477)
Accrued interest on term
notes, net . . . . . . . 59,622 61,911
(Increase) decrease in:
Accrued investment income 29,226 11,906
Reinsurance recoverable 322,324 (210,808)
Trade receivables . . . (612,084) (905,233)
Other assets . . . . . . 16,655 193,678
Increase (decrease) in:
Policy liabilities and
accruals . . . . . . 900,181 1,291,912
Ceded reinsurance payable (1,831,824) -
Accounts payable and other
liabilities . . . . . . 179,476 468,884
----------------------------
Net cash (used in) provided by
operating activities . . . (739,056) 316,840
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Six Months Ended June 30,
-----------------------------
1998 1997
-------------- --------------
(Unaudited) (Unaudited)
Investing activities:
Securities available-for-sale :
Purchases - fixed maturities (842,319) (736,063)
Sales - fixed maturities . 1,787,151 599,039
Purchases - equities . . . (1,846,235) (2,057,018)
Sales - equities . . . . . 2,152,210 1,956,312
Securities held-to-maturity:
Purchases . . . . . . . . . . (299,483)
Maturities . . . . . . . . . 127,140 725,000
Purchase - short-term
investment . . . . . . . . (100,000) -
Proceeds from sales and
maturities of investments 348 464
Net advances to (from)
affiliates . . . . . . . . . 66,528 (257,855)
----------------------------
Net cash (used in) provided by
investing activities . . . . 1,344,823 (69,604)
Financing activities:
Purchases of treasury stock . . - (9,448)
Payments on short-term
borrowings and long-term
debt . . . . . . . . . . . . (124,577) (116,211)
----------------------------
Net cash (used in) provided by (124,577) (125,659)
financing activities . . . . ----------------------------
Increase (decrease) in cash and
cash equivalents . . . . . . 481,190 121,577
Cash and cash equivalents,
beginning of period . . . . . 1,803,530 993,069
----------------------------
Cash and cash equivalents, end
of period . . . . . . . . . . $ 2,284,720 $ 1,114,646
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
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 five of its
six subsidiaries. CCS, a Florida corporation formed in May
1988, provides underwriting 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, is an inactive corporation. 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.
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.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Summary of Significant Accounting Policies (continued)
------------------------------------------------------
Reclassifications - Certain amounts in the 1997 financial
statements have been reclassified to conform to the 1998
financial statement presentations.
2. Net Income Per Share
--------------------
Net income per share for the six months ended June 30, 1998
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, 1997, 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.
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, 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 (including accrued interest).<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 were 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.
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. Goodwill 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)
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 for miscellaneous bonds and completion date or
anticipated contract completion date for contract bonds.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 for unpaid losses 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>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
10. Year 2000
---------
The Company has developed an in-house surety
administrative system "BondPro". BondPro is an agency
surety bond administration system that issues bonds,
tracks underwriting, and accounting and reporting from its
database. BondPro is a window based program and is year
2000 compliant. The Company is aware of the issues that
many computer systems will face as the millennium (year
2000) approaches. The Company, however, believes that its
own internal software and hardware is year 2000 compliant.
The Company believes that any year 2000 problems
encountered by procurement agencies, and other customers
and vendors are not likely to have a material adverse
effect on the Company s operations. The Company
anticipates no other year 2000 problems which are
reasonably likely to have a material adverse effect on the
Company s operations. There can be no assurance, however,
that such problems will not arise.<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 $15,100,000 at June 30, 1998.
Therefore, based upon statutory guidelines, the Company could
increase earned premiums by approximately $9,500,000 in 1998 in
addition to the amount earned in 1997. The primary sources of
liquidity for the Company are funds generated from surety pre-
miums, 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, 1998, the Company s $14,947,204 of total assets
calculated based on generally accepted accounting principles were
distributed primarily as follows: 50 percent in cash and
investments (including accrued investment income), 30 percent in
receivables and reinsurance recoverables, 18 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) provided by operating activities was
($739,056) and $316,840 for the six months ended June 30, 1998
and 1997, respectively. The decrease in net cash used in
operating activities during 1998 is attributed to a decrease in
ceded reinsurance payables, reinsurance recoverables and an
increase trade receivables, which is offset by an increase in
policy and other liabilities and deferred policy acquisition
costs. In 1997 the cash used in operating activities was
primarily attributable to a net increase in policy and other
liabilities which was offset by policy acquisition costs net of
amortization and a net increase in trade and reinsurance
receivables.
Net cash (used in) provided by investing activities was
$1,344,823 and ($69,604) for the six months ended June 30, 1998,
and 1997, respectively. Investing activities consist of
purchases and sales and maturities of investments.<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, 1998 AND 1997
-----------------------------------------------------
During the six months ended June 30, 1998, net premium
income totaled $3,572,920 representing an increase of 134 percent
from that of the same period in 1997 ($1,526,610). The increase
is attributed to the marketing direction of the Company, which is
to penetrate the direct market while decreasing the volume of
reinsurance premiums assumed through Pooling Agreements. During
the first six months of 1998 as compared to the same period
during 1997, direct premiums increased $2,368,866 (152%); assumed
premiums increased $298,400 (157%) and ceded premiums increased
$620,955 or 285%. The increase in the assumption premiums are a
result of alliances the Company has entered into through their
direct written premiums program. The increase in ceded premiums
has a direct correlation to the direct premium written and the
association to Excess of Loss treaties on these premiums.
Net investment income for the second quarter of 1998 as
compared to the same period during 1997 reflect no significant
changes. Net realized gains during 1998 were $90,841 higher than
realized gains for the same period of 1997. Realized gains
result from the disposal of common stock.
Other income was $554,910 during the six months ended June
30, 1998 as compared to $566,667 for the same period during 1997.
Other income represents non-insurance company related earnings of
the Company's subsidiaries.
During the six months ended June 30, 1998 and 1997, benefits
and claims expenses increased to $880,956 from $420,059, an
increase of 110 percent. Incurred claims expenses represent the
net reserve increase after deduction of paid claims and
fluctuates based on premiums written and earned as well as claims
incurred and paid. The increase of $460,897 is consistent with
the flow of premiums, representing approximately 20 to 25 percent
of net premium, when comparing the benefit and claims expense for
the second quarter of 1998 to the same period of 1997.
During the six months ended June 30, 1998, the amortization
of deferred policy acquisition costs increase is attributed to
the increase in premiums written and earned. Deferred policy
acquisition costs average approximately 20 percent of direct
earned premiums.<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, 1998 AND 1997 (CONTINUED)
-----------------------------------------------------------------
Operating expenses increased $112,144 (5.6%) during the six
months ended June 30, 1998 when compared to the six months ended
June 30, 1997 and is attributed to the Company s growth. The
increase of 78 percent in written premiums compared to the 6
percent increase in operating expenses reflect the economies-of-
scale achieved through use of the Company's BondPro automated
bond issuance program.
Net interest expense in 1998 remained consistent when
compared to the same period during 1997. Interest expense
represents amounts incurred on the notes payable to affiliates
(See Note 4).
The Company has recorded no income tax expense due to the
tax loss carry-forward of approximately $841,568 which will begin
to expire in year 2010 and 2011.<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, 1998 AND 1997
-------------------------------------------------------
During the three months ended June 30, 1998, net premium
income totaled $1,834,462 representing an increase of 145 percent
from that of the same period in 1997 ($747,614). The increase is
due primarily to the increase in the amount of direct premiums
written and earned.
During the three months ended June 30, 1998, net investment
income remained level while net capital gains on disposal of
common stock increased $70,147 or 206% from that earned during
the same period in 1997.
During the three months ended June 30, 1998, other income
remained consistent when compared to the same period during 1997.
During the three months ended June 30, 1998, benefits and
claims expenses increased to $528,536 from $127,779 from that of
the same period in 1997. The increase is due primarily to an
increase in benefits and claims associated with the increase in
direct premiums written and earned.
During the three months ended June 30, 1998, the
amortization of deferred policy acquisition costs increased
$303,930 (343%) when compared to the same period during 1997.
The increase is attributed to the increase in net premiums
earned.
During the three months ended June 30, 1998, operating
expenses increased $129,130 or 13 percent when compared to the
three months ended June 30, 1997. The increase is attributed to
operating expenses associated with the Company s growth.
Net interest expense remained consistent when compared to
the same period during 1997.
Net gain from operations for the three months ended June 30,
1998 was $326,268 as compared to a net loss of ($30,915) for the
same period during 1997, an increase of $357,183 or 1,153
percent. The net gain is a result of the Company s growth in the
direct premium surety market. Operating expenses increased 13
percent compared to a 65 percent increase in written premium
reflecting economies-of-scale achieved through automation in
processing the Company's insurance activity.<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)
Exhibit 27.2 - Financial Data Schedule
(for SEC use only) (1997 restated)
(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 18, 1998 By: /s/Joseph M. Williams
------------------------------ ------------------------------
Joseph M. Williams
President and
Chief Executive Officer
(Principle Executive Officer)
Date: August 18, 1998 By: /s/Carol S. Black
------------------------------ ------------------------------
Carol S. Black
Secretary and
Chief Financial Officer
(Principle Accounting and
Financial Officer)<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 2,525,200
<DEBT-CARRYING-VALUE> 859,599
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,356,475
<MORTGAGE> 44,966
<REAL-ESTATE> 0
<TOTAL-INVEST> 5,210,233
<CASH> 2,284,720
<RECOVER-REINSURE> 1,694,432
<DEFERRED-ACQUISITION> 1,165,367
<TOTAL-ASSETS> 14,947,204
<POLICY-LOSSES> 2,502,383
<UNEARNED-PREMIUMS> 3,524,717
<POLICY-OTHER> 627,349
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 1,353,564
0
0
<COMMON> 5,763
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,942,204
3,572,920
<INVESTMENT-INCOME> 213,144
<INVESTMENT-GAINS> 170,318
<OTHER-INCOME> 554,910
<BENEFITS> 880,956
<UNDERWRITING-AMORTIZATION> 757,907
<UNDERWRITING-OTHER> 2,225,668
<INCOME-PRETAX> 646,761
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 646,761
<EPS-PRIMARY> .12
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<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> 790,653
<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> 566,667
<BENEFITS> 420,059
<UNDERWRITING-AMORTIZATION> 217,632
<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)
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</TABLE>
