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 March 31, 1999.
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) 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 [ ]
Applicable Only to Corporate Issuers
The number of shares of the Registrant's common stock, $.001 par
value, outstanding as of March 31, 1999 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 March 31, 1999 and
December 31, 1998 . . . . . . . . . . 1-2
Condensed consolidated statements
of operations for the three months
ended March 31, 1999
and March 31, 1998. . . . . . . . . . . 3
Condensed consolidated statements
of cash flows for the
three months ended
March 31, 1999 and 1998 . . . . . . . . 4
Notes to condensed consolidated
financial statements . . . . . . . . 5-11
Item 2. Management's Discussion and Analysis
of financial condition and
results of operations . . . . . . . 12-13
PART II OTHER INFORMATION
------- -----------------
Item 1. Legal proceedings . . . . . . . . . . . . 14
Item 2. Changes in securities . . . . . . . . . . 14
Item 3. Defaults upon senior securities . . . . . 14
Item 4. Submission of matters to a vote
of security holders . . . . . . . . . 14
Item 5. Other information . . . . . . . . . . . . 14
Item 6. Exhibits and Reports of Form 8-K . . . . 14
Signatures . . . . . . . . . . . . . . . 15<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
March 31, December 31,
1999 1998
-------------- --------------
(Unaudited)
ASSETS
------
Investments:
Securities available-for-
sale at fair value:
Fixed maturities . . . . . $ 1,559,419 $ 2,081,770
Equity securities . . . . 432,500 576,575
Fixed maturity securities
held-to-maturity, at
amortized cost . . . . . . 860,974 860,508
Residential mortgage loan on
real estate, at unpaid
principal . . . . . . . . 44,150 44,427
Short-term investments . . 423,993 423,993
----------------------------
Total investments . . . . 3,321,036 3,987,273
Cash and cash equivalents . . . 3,828,928 4,202,351
Accrued investment income . . . 60,905 55,348
Reinsurance recoverable . . . . 3,060,802 2,306,372
Accounts receivable:
Trade . . . . . . . . . . . 1,684,967 1,809,726
Affiliate . . . . . . . . . 840,771 927,910
Income tax recoverable . . . . 51,750 120,000
Deferred policy acquisition
costs . . . . . . . . . . . 1,278,409 1,246,555
Intangibles, net . . . . . . . 1,406,221 1,455,525
Other assets . . . . . . . . . 234,628 233,991
----------------------------
$ 15,768,417 $ 16,345,051
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 December 31,
1999 1998
-------------- --------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS'
EQUITY
--------------------------------
Policy liabilities and accruals:
Loss and loss adjustment
expenses . . . . . . . . . $ 3,307,390 $ 3,220,457
Unearned premiums . . . . . 3,907,269 3,749,945
Ceded reinsurance payable . . . 110,353 1,114,267
Accounts payable and other
liabilities . . . . . . . . 655,957 580,564
Long-term debt:
Nonaffiliate . . . . . . . 1,318,709 1,330,588
Affiliate . . . . . . . . . 1,000,000 1,000,000
----------------------------
Total liabilities . . . . . 10,299,678 10,995,821
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
March 31, 1999 and December
31, 1998 respectively . . 5,763 5,763
Capital in excess of par
value . . . . . . . . . . 7,212,941 7,212,941
Accumulated other
comprehensive losses . . . (318,802) (190,929)
Accumulated deficit . . . . (1,167,444) (1,414,826)
----------------------------
5,732,458 5,612,949
Less treasury stock, at cost,
318,112 shares at March 31,
1999 and December 31, 1998 (263,719) (263,719)
----------------------------
Total stockholders' equity 5,468,739 5,349,230
----------------------------
$ 15,768,417 $ 16,345,051
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
-----------------------------
1999 1998
-------------- --------------
(Unaudited) (Unaudited)
REVENUES:
Direct premiums earned . . $ 2,302,022 $ 1,802,610
Reinsurance premiums assumed 417,406 383,390
Less reinsurance ceded . . (560,181) (447,542)
----------------------------
Net premium income . . . . 2,159,247 1,738,458
Net investment income . . . 88,249 97,993
Net realized investment
gains . . . . . . . . . . 9,949 66,177
Other income:
Affiliates . . . . . . . . - 51,380
Nonaffiliates . . . . . . 327,372 336,069
----------------------------
2,584,817 2,290,077
Benefits and expenses:
Losses and loss adjustment
expenses . . . . . . . . . 476,710 352,420
Amortization of deferred
policy acquisition costs 765,586 528,035
Operating expenses . . . . 972,972 1,059,224
Interest expense . . . . . 53,917 29,906
----------------------------
2,269,185 1,969,585
----------------------------
Income (loss) before income
taxes . . . . . . . . . . . 315,632 320,492
Income taxes (benefit) . . . . 68,250 -
----------------------------
Net income (loss) . . . . . . . $ 247,382 $ 320,492
============================
Weighted average number of
shares . . . . . . . . . . 5,447,966 5,449,458
============================
Net income (loss) per share . . $ .05 $ .06
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
-----------------------------
1999 1998
-------------- --------------
(Unaudited) (Unaudited)
Operating activities:
Net income (loss) . . . . . . . $ 247,382 $ 320,492
Adjustments to reconcile net
income (loss) to net cash
(used in) provided by
operating activities:
Amortization/accretion of
investment premiums and
discounts . . . . . . . 421 (269)
Policy acquisition costs
amortized . . . . . . . . (765,586) (528,035)
Policy acquisition costs
deferred . . . . . . . . . 733,732 347,084
Depreciation and amortization 49,303 66,027
Net realized (gain) on sales
of investments . . . . . . (9,949) (66,177)
Accrued interest on term
notes, net . . . . . . . . - 29,906
(Increase) decrease in:
Accrued investment income (5,557) 11,664
Reinsurance recoverable . (754,430) 385,941
Trade receivables . . . . 124,759 217,396
Income tax recoverable . . 68,250 -
Other assets . . . . . . . (637) (6,800)
Increase (decrease) in:
Policy liabilities and
accruals . . . . . . . . 244,257 229,263
Ceded reinsurance payable (1,003,914) (559,916)
Accounts payable and other
liabilities . . . . . . 75,393 54,780
----------------------------
Net cash (used in) provided by
operating activities . . . (996,576) 501,356
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three Months Ended March 31,
-----------------------------
1999 1998
-------------- --------------
(Unaudited) (Unaudited)
Investing activities:
Securities available-for-sale :
Sales - fixed maturities . 511,262 725,000
Purchases - equities . . . 36,354 (1,239,600)
Sales - equities . . . . . - 1,248,715
Proceeds from sales and
maturities of investments . . 277 86
Net advances to (from)
affiliates . . . . . . . . . 87,139 176,143
----------------------------
Net cash provided by investing
activities . . . . . . . . . 635,032 910,344
Financing activities:
Payments on short-term
borrowings and long-term
debt . . . . . . . . . . . . (11,879) (77,815)
----------------------------
Net cash (used in) financing
activities . . . . . . . . . (11,879) (77,815)
----------------------------
Increase (decrease) in cash and
cash equivalents . . . . . . (373,423) 1,333,885
Cash and cash equivalents,
beginning of period . . . . . 4,202,351 2,127,523
----------------------------
Cash and cash equivalents, end
of period . . . . . . . . . . $ 3,828,928 $ 3,461,408
============================
See notes to condensed consolidated financial statements.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
1. Summary of Significant Accounting Policies
------------------------------------------
Organization - Cumberland Technologies, Inc. ( CTI or
Cumberland ), (f/k/a Cumberland Holdings, Inc.) 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 wholly-owned
subsidiaries, Cumberland Casualty & Surety Company ( CCS )
and Surety Specialists, Inc. ( SSI ) to CTI. KC then
distributed to its stockholders CTI's common stock on the
basis of one share of common stock of CTI for each five
shares of KC common stock and Class B common stock owned
(the Distribution ). Cumberland Technologies, Inc., ( the
Company ) is a holding company engaged through its
subsidiaries, Cumberland Casualty & Surety Company ( CCS ),
Surety Specialists, Inc. ( SSI ), The Surety Group, Inc.
( SG ), Associates Acquisition Corp. d/b/a Surety Associates
( SA ) and Qualex Consulting Group, Inc. ( Qualex ) in the
delivery of speciality surety and insurance services.
Surety services include underwriting surety bonds on a
direct and assumed basis, surety consulting and the
development of surety software. Insurance services include
the underwriting of speciality and other liability insurance
products. In addition, the Company conducts its business
through a number of independent agencies which focus on
selling and delivering surety insurance products to
consumers. Traditionally, this segment of the surety
industry has delivered its products through an antiquated
manual process. Because of this need to advance
technologically, the Company developed a software product
called Bond-Pro . This patented surety issuance system
increases the speed that surety agents deliver their
products to the customer and financially report those
transactions to the carrier, while reducing operating costs.
The Company s business strategy is to continue the
underwriting focus of each of its operating subsidiaries and
to achieve growth through the expanded licensing of Bond-
Pro .
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)
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 1998 financial
statements have been reclassified to conform to the 1999
financial statement presentations.
Use of Estimates - We make estimates and assumptions that
have an effect on the amounts that we report in our
financial statements. Our most significant estimates are
those relating to our reserves for losses and loss
adjustment expenses. We continually review our estimates
and make adjustments as necessary, but actual results could
turn out significantly different than what we envisioned
when we made these estimates.
2. Net Income Per Share
--------------------
Net income per share for the three months ended March 31,
1999 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.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. Investments
-----------
Change in Unrealized Appreciation: The increase (decrease)
in unrealized appreciation of investments recorded in
shareholders equity was as follows:
Twelve Months
Three Months Ended
Ended December 31,
March 31, 1999 1998
-------------- --------------
Fixed maturities . . $ 11,185 $ 31,983
Equities . . . . . . (329,987) (222,912)
-------------- --------------
Total change in
unrealized
appreciation . . $ (318,802) $ (190,929)
============== ==============
4. Income Taxes
------------
The Company s provision for income taxes for the quarter
ended March 31, 1999 has an effective rate of 22% after
utilization of the Company s net operating loss carryforward
of approximately $227,908. The Company elected not to set
up a provision for income taxes for the quarter ending March
31, 1998 due to its net operating loss carryforward of
approximately $841,568.
5. 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, 1998, 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)
5. Term Note Due Affiliate (continued
----------------------------------
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. 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).
6. Notes Payable
-------------
Affiliate
---------
Effective November 10, 1998, Cumberland entered into a
$1,000,000 convertible term note agreement with TransCor
Waste Services, Inc., a subsidiary of KC. The note is due
November 10, 2001 and bears interest at 10%. The lender may
convert the principal amount of the note or a portion
thereof into a common stock at $3.00 per share subsequent to
a six-month anniversary and prior to the maturity date.
Nonaffiliate
------------
In connection with the acquisition of certain agencies
during 1995, 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 9%. 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)
7. 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)
8. 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.
9. 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)
10. 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.
11. Statutory Accounting Practices
------------------------------
Our underwriting operations are required to file financial
statements with state regulatory authorities. The
accounting principles used to prepare these statutory
financial statements follow prescribe accounting principles,
which differ from GAAP. On a statutory accounting basis,
our underwriting operations reported income net of taxes of
$360,232 at March 31, 1999 and $74,157 at December 31, 1998.
Statutory surplus (shareholders' equity) of these operations
was $4,892,105 and $4,843,478 as of March 31, 1999 and
December 31, 1998, respectively.
12. Comprehensive Income
--------------------
We adopted the provisions of the SFAS No. 130, Reporting
Comprehensive Income, in 1998. Comprehensive income is
defined as any change in our equity from transactions and
other events originating from nonowner sources. In our
case, those changes are composed of our reported net income
and changes in the unrealized appreciation of our investment
portfolio. SFAS No. 130 requires that we report all
components of comprehensive income. The following summaries
present the components of our comprehensive income, other
than net income, for the last two years.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
12. Comprehensive Income (continued)
--------------------------------
Consolidated Statements of Comprehensive Income
(Unaudited)
------------------------------------------------
Three Months Ended March 31
----------------------------
1999 1998
------------- -------------
Net income . . . . . . . . $ 247,382 $ 320,493
Change in unrealized
(depreciation)
appreciation . . . . . . (127,873) 27,755
------------- -------------
Comprehensive income . . . $ 119,509 $ 348,248
============= =============
13. Year 2000
---------
The Company has employed consultants to address its Year
2000 issues in conjunction with the Company s own
information technology staff. Excluding the costs for the
Company s own information technology personnel, the total
cost of compliance is expected to be approximately $100,000
(of which $41,000 including equipment upgrades will be a
capital expenditure). All costs (except capital) have been
and will be expensed as incurred and will be funded from the
normal operating cash flows.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
13. Year 2000 (continued)
---------------------
The Company has developed an in-house surety administrative
system Bond-Pro . Bond-Pro is an agency surety bond
administration system that issues bonds, tracks
underwriting, and accounting and reporting from its
database. Bond-Pro 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.
Excluding any possible catastrophic events such as the loss
of utilities or banking, financial or communications
services, the potential risks known to the Company at this
time are primarily limited to delays, disruptions or losses
resulting from information bottlenecks and the lack of
computer processing power. In order to mitigate the risk to
the greatest extent possible, the Company will be prepared
to track mission-critical information manually. Such
information includes tracking premium income, and
receivables and recording payments received from agencies.
The Company believes its current workforce and the
employment pool available in the area is sufficiently
skilled to accommodate such a demand. The Company will
continue to evaluate its contingency planning activities as
more information becomes available. At this time, the total
cost of the risks is not anticipated to have a material
adverse effect on the business, financial condition or
results of operations of the Company.
14. Subsequent Events
-----------------
On February 1, 1999, the Company filed a Registration
Statement on Form S-8 to register 400,000 shares of stock
available to participants of the 1991 Stock Option Plan.<PAGE>
CUMBERLAND TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Forward-looking Statement Disclosure
------------------------------------
This report contains certain forward-looking statements within
the meaning of the Private Litigation Reform Act of 1995.
Forward-looking statements are statements other than historical
information or statements of current condition. Words such as
experts, anticipates, intends, plans, believes, seeks or
estimates, or variations of such words, and similar expressions
are also intended to identify forward-looking statements.
Examples of these forward-looking statements include statements
concerning the effects of competition on premiums and revenues,
expectations regarding Year 2000 issues and the Company s efforts
to address them.
All statements, other than statements of historical facts,
included or incorporated by reference in this Form 10-Q which
address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including
statements regarding the Company s competitive position, changes
in business strategy or plans, the availability and price of
reinsurance, the Company s ability to pass on price increases,
plans to install the Bond-Pro program in independent insurance
agencies, the impact of insurance laws and regulation, the
availability of financing, reliance on-key management personnel,
ability to manage growth, the Company s expectations regarding
the adequacy of current financing arrangements, product demand
and market growth, and other statements regarding future plans
and strategies, anticipated events or trends similar expressions
concerning matters that are not historical facts are forward-
looking statements. These statements are based on certain
assumptions and analysis made by the Company in light of its
experience and its perception of historical trends, current
conditions and expected future developments as well as factors it
believes are appropriate in the circumstances. However, whether
actual results and developments will conform with the Company s
expectations and predictions is subject to a number of risks and
uncertainties which could cause actual results to differ
significantly and materially from past results and from the
Company s expectations. The Company assumes no obligation to
update publicly any such forward-looking statements, whether as a
result of new information, future events or otherwise.<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 $14,700,000 at March 31, 1999,
respectively. Therefore, based upon statutory guidelines, the
Company could increase earned premiums by approximately
$7,200,000 in 1999 in addition to the amount earned in 1998. 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 March 31, 1999, the Company s $15,768,417 of total assets
calculated based on generally accepted accounting principles were
distributed primarily as follows: 46 percent in cash and
investments (including accrued investment income), 35 percent in
receivables and reinsurance recoverables, 17 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
($996,576) and $501,356 for the three months ended March 31, 1999
and 1998, respectively. In 1999 the cash used in operating
activities was primarily attributable to a net decrease in ceded
reinsurance payable. Net cash provided in operating activities
during 1998 is attributed to a net increase in reinsurance
recoverables and trade receivables, which is offset by a decrease
in policy liabilities, ceded reinsurance payable and policy
acquisition costs, net of amounts deferred.
Net cash provided by investing activities was $635,032 and
$910,344 for the three months ended March 31, 1999, and 1998,
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 THREE MONTHS ENDED MARCH 31, 1999 AND 1998
--------------------------------------------------------
During the three months ended March 31, 1999, net premium
income totaled $2,159,247 representing an increase of 24 percent
from that of the same period in 1998 ($1,738,458). 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 three months of 1999 as compared to the same period
during 1998, direct premiums increased $425,484 (22%); net
assumed premiums decreased $143,932 (21%) and ceded premiums
increased $134,868 (28%). The Company did not record pooling
agreement assumption premiums for the first quarter of 1999 which
accounts for the decrease in assumed premiums. Ceded premiums
increase as the volume of direct premiums increase based on their
relationship under the Company s reinsurance treaties.
Net investment income for the first quarter of 1999 as
compared to the same period during 1998 reflect no significant
changes. Net realized gains during 1998 were $56,228 higher than
realized gains for the same period of 1999. Other income
decreased by $60,076 during the first three months of 1999 when
compared to 1998. The decrease is attributable to the Company s
market focus of direct premium writings for CCS. As a result,
subsidiary company s earnings attributed to income earned in
other markets have decreased.
During the three months ended March 31, 1999 and 1998,
benefits and claims expenses increased to $476,710 from $352,420.
Incurred 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
$124,290 is consistent with the flow of premiums when comparing
the first quarter of 1999 to the same period of 1998.
During the three months ended March 31, 1999, the
amortization of deferred policy acquisition costs increase is
attributed to the increase in premiums written and earned.
Operating expenses decreased by $87,844 or 9% for the three
months ended March 31, 1999 when compared to the three months
ended March 31, 1998. The decrease is attributed to a decrease
in salary and payroll expenses, consulting fees, travel and other
general expenses and is partially offset by an increase in taxes,
license and fees.
The increase in interest expense in 1999 is attributed to
the interest on the note payable to affiliate of $1,000,000<PAGE>
executed in the fourth quarter of 1998.<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: May 17, 1999 By: /s/ Joseph M. Williams
------------------------------ ------------------------------
Joseph M. Williams
President and
Chief Executive Officer
(Principle Executive Officer)
Date: May 17, 1999 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 1,559,419
<DEBT-CARRYING-VALUE> 860,974
<DEBT-MARKET-VALUE> 0
<EQUITIES> 432,500
<MORTGAGE> 44,150
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,321,036
<CASH> 3,828,928
<RECOVER-REINSURE> 3,060,802
<DEFERRED-ACQUISITION> 1,278,409
<TOTAL-ASSETS> 15,768,417
<POLICY-LOSSES> 3,307,390
<UNEARNED-PREMIUMS> 3,907,269
<POLICY-OTHER> 110,353
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 2,318,709
0
0
<COMMON> 5,763
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,768,417
2,159,247
<INVESTMENT-INCOME> 88,249
<INVESTMENT-GAINS> 9,949
<OTHER-INCOME> 327,372
<BENEFITS> 476,710
<UNDERWRITING-AMORTIZATION> 765,586
<UNDERWRITING-OTHER> 972,972
<INCOME-PRETAX> 315,632
<INCOME-TAX> 68,250
<INCOME-CONTINUING> 247,382
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 247,382
<EPS-PRIMARY> .05
<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>
