<PAGE> 1
UNITED STATES
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[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 number 000-24057
Rushmore Financial Group, Inc.
---------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-2375969
-------- ---------------
(State of Incorporation) (I. R. S. Employer Identification No.)
13355 Noel Road, Suite 650, Dallas, Texas 75240
-------------------------------------------------------------
972-450-6000
-----------------------------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by the court.
Yes No
------ ------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes XXX No
--- ---
State the number of shares outstanding of each of the issuer's classes
of common equity as of June 30, 1998: 2,984,617 shares of common stock, $0.01
par value.
Transitional Small Business Disclosure Format;
Yes No XXX
---- ----
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ---------------
ASSETS
<S> <C> <C>
Investments:
Cash and cash equivalents $ 3,011,756 $ 1,218,362
Amounts on deposit with reinsurer 30,312,775 30,483,274
Bonds available for sale; amortized cost $804,970 803,638 --
Equity securities available for sale 112,813 687
------------ ------------
Total investments 34,240,982 31,702,323
Deferred policy acquisitions costs 2,143,820 2,295,697
Present value of future profits 61,180 763,327
Notes, accounts receivable and uncollected premiums 571,596 464,588
Prepaid expenses and deposits 149,820 80,098
Equipment, net of accumulated depreciation 137,198 110,877
Deferred federal income taxes 87,536 10,072
Goodwill 251,215 255,060
Other assets and intangibles 13,539 196,341
------------ ------------
Total assets $ 37,656,886 $ 35,878,383
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits $ 89,979 $ 86,192
Universal life contract liabilities 32,682,248 32,880,011
Claims payable 171,960 308,866
Notes payable 2,295 87,295
Due to reinsurers 451,208 995,883
Accrued expenses & other liabilities 292,573 411,937
------------ ------------
Total liabilities 33,690,263 34,770,184
------------ ------------
Shareholders'
Equity:
Preferred stock-9% cumulative preferred stock, $10 par value,
2,000 shares issued and outstanding at June 30, 1998 and
4300 shares issued and outstanding at December 31, 1997 20,000 43,000
Preferred stock-Series A cumulative preferred stock, $10 par
value, 13,687 shares issued and outstanding at June 30, 1998
and 13,792 shares issued and outstanding at December 31, 1997 136,870 137,920
Common stock-$0.01 par value, 10,000,000 shares authorized,
3,066,597 shares issued and 2,984,617 outstanding at June 30, 1998;
10,000,000 shares authorized and 2,187,016 issued and 2,105,036
outstanding at December 31, 1997 30,666 21,870
Common stock subscribed, 4,567 shares at $1.92 at
December 31, 1997 -- 46
Additional paid in capital 6,052,692 2,486,244
Treasury stock, 81,980 shares at cost (78,881) (78,881)
Retained earnings (deficit) (1,989,428) (1,340,897)
Accumulated other comprehensive income (loss) 733 (110)
Shareholder/affiliate loans:
Common stock subscriptions receivable -- (8,769)
Shareholder loans (86,467) (102,460)
Receivable from affiliates (119,562) (49,764)
------------ ------------
Total shareholders' equity 3,966,623 1,108,199
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 37,656,886 $ 35,878,383
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 3
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
--------------------------- ---------------------------
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Revenue from Insurance Services:
Insurance policy income $ 778,632 $ 815,276 $ 1,615,151 $ 815,276
Net Investment income 573,154 516,603 1,097,071 516,603
Agency Management fee -- 24,400 -- 42,400
Other income -- -- -- 6,252
Revenue from Investment Services:
Commissions and fees 616,806 504,516 1,116,630 1,008,740
Asset management 53,823 36,739 99,478 64,036
Other 29,243 21,336 45,211 26,801
----------- ----------- ----------- -----------
Total revenues 2,051,658 1,918,870 3,973,541 2,480,108
----------- ----------- ----------- -----------
Expenses:
Insurance Services Expenses:
Other insurance services expenses 294,538 401,756 611,512 404,066
Policyholder benefits 686,636 774,985 1,128,575 774,985
Amortization of deferred policy
acquisition costs 210,320 83,197 428,863 83,197
Amortization of present value of insurance in force 369,932 128,498 702,147 128,498
Equity in losses of subsidiary -- -- -- 19,264
Investment services expenses:
Commission expense 539,567 460,904 978,069 901,768
Other investment services expenses 29,299 14,264 54,183 36,713
General and administrative 423,045 187,989 708,415 377,460
----------- ----------- ----------- -----------
Total expenses 2,553,337 2,051,593 4,611,764 2,725,951
----------- ----------- ----------- -----------
Operating income (loss) (501,679) (132,723) (638,223) (245,843)
Interest expense 2,198 1,464 7,549 2,524
----------- ----------- ----------- -----------
Income (loss) from continuing
operations before income taxes (503,877) (134,187) (645,772) (248,367)
Provision for income taxes 2,760 (78,647) 2,760 (78,647)
----------- ----------- ----------- -----------
Income (loss) from continuing operations (506,637) (55,540) (648,532) (169,720)
Discontinued operations (net) -- -- -- (25,992)
----------- ----------- ----------- -----------
Net income (loss) $ (506,637) $ (55,540) $ (648,532) $ (195,712)
=========== =========== =========== ===========
Income (loss) from continuing operations
applicable to common shareholders $ (510,707) $ (59,611) $ (656,673) $ (177,862)
=========== =========== =========== ===========
Net income (loss) applicable to common
shareholders $ (510,707) $ (59,611) $ (656,673) $ (203,854)
=========== =========== =========== ===========
Basic and diluted:
Income (loss) from continuing operations per
share of common stock, after dividends on
preferred stock $ (0.17) $ (0.03) $ (0.26) $ (0.11)
=========== =========== =========== ===========
Net income (loss) per share of common stock,
after dividends on preferred stock $ (0.17) $ (0.03) $ (0.26) $ (0.13)
=========== =========== =========== ===========
Weighted average common shares outstanding - basic 2,984,617 1,812,903 2,566,240 1,625,343
=========== =========== =========== ===========
Weighted average common shares outstanding - diluted 2,984,617 1,812,903 2,566,240 1,625,343
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 4
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (648,532) $ (195,712)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 6,694 15,791
Loss from equity investment -- 19,264
CHANGE IN ASSETS AND LIABILITIES NET OF
EFFECTS FROM PURCHASE OF RUSHMORE LIFE:
(Increase) decrease in assets:
Notes, accounts receivable & uncollected premiums (107,008) (42,234)
Prepaid expenses and deposits (69,722) (48,257)
Deferred policy acquisition costs 151,877 (80,178)
Present value of future profits 702,147 128,498
Amounts on deposit with reinsurer 170,499 (639,449)
Net deferred federal income taxes (77,464) --
Increase (decrease) in liabilities:
Accrued expenses and other liabilities (119,364) 30,388
Due reinsurers (544,675) 4,975
Future policy benefits 3,787 (1,742)
Universal Life liabilities (197,763) 680,859
Claims payable (136,906) 20,781
Net deferred federal income taxes -- (50,182)
----------- -----------
Net cash flows (used) by operating activities (866,430) (157,198)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to officers and affiliate (45,036) (3,578)
Purchase of equipment (29,169) (7,705)
Cash acquired in acquisition of Rushmore Life net of cash paid -- 1,181,143
Purchase of equity securities available for sale (111,283) (797)
Purchase of bonds available for sale (803,638) --
Collateral loan made -- (75,000)
----------- -----------
Net cash flows provided (used) by investing activities (989,126) 1,094,063
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of Common Stock, net of offering cost 3,766,141 218,598
Preferred stock redeemed (24,050) --
Purchase of treasury stock -- --
Preferred Stock dividends paid (8,141) (8,142)
Borrowings under term loans -- --
Payments on term loans (85,000) --
----------- -----------
Net cash flows provided by financing activities 3,648,950 210,456
----------- -----------
Change in cash and cash equivalents 1,793,394 1,147,321
Cash and cash equivalents at beginning of period 1,218,362 117,738
----------- -----------
Cash and cash equivalents at end of period $ 3,011,756 $ 1,265,059
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 9,361 $ 2,636
Cash paid for income taxes $ 86,558 $ 50,000
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The financial statements included herein have been prepared by Rushmore
Financial Group, Inc. ("RFGI") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although RFGI believes that the
disclosures contained herein are adequate to make the information presented not
misleading. In the opinion of management, the information furnished in the
unaudited consolidated financial statements reflects all adjustments which are
ordinary in nature and necessary to present fairly RFGI's financial position,
results of operations and changes in financial position for such interim period.
These interim financial statements should be read in conjunction with RFGI's
financial statements and the notes thereto as of December 31, 1997, included in
RFGI's annual report on Form 10KSB for the year ended December 31, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three Months Ended June 30, 1998 and 1997
Revenues
The following table sets forth the components of the Company's revenues for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1997
---------- ----------
<S> <C> <C>
Insurance services $1,351,786 $1,356,279
Investment services 670,629 541,255
Other 29,243 21,336
---------- ----------
Total revenues $2,051,658 $1,918,870
</TABLE>
Total revenues increased 7% from $1,918,870 for the second quarter of 1997 to
$2,051,658 during the second quarter of 1998. The increase resulted from
increases in brokerage income, mutual fund revenue and annuity commissions of
the investment services division. This division experienced a 24% increase in
revenue as its number of representatives increased.
Expenses
Insurance services expenses increased $172,990 or 12% due to an increase in
amortization of the present value of future profits in force from $128,498
during the second quarter of 1997 to $369,932 during the same quarter of 1998.
Based on the expected future profits of policies in force at the time of the
acquisition of Rushmore Life, an asset was established in the amount of
$1,155,908. Amortization was then established based on the expected pattern of
those future profits.
Investment services expenses increased 20% from $475,168 to $568,866.
Commissions paid as a percentage of commission revenue decreased from 91% in
1997 to 87% in 1998. Direct overhead associated with investment services
increased 105% from $14,264 to $29,299. This was primarily due to increases in
staff that resulted in an increase in licensing, quote service and telephone
expenses.
General and administrative expenses increased 125% from $187,989 to $423,045 due
to increases in staff and office space. Payroll expenses and payroll taxes
increased $98,227 and office rent increased $41,729.
<PAGE> 6
Operating income (loss)
The Company's operating loss for the second quarter of 1998 of $501,679
represents an increase of $368,956 from the loss of $132,723 for the second
quarter of 1997. The Company's net loss applicable to common shareholders for
the second quarter of 1998 increased $451,096 from a net loss of $59,611 or
$0.03 per share (basic and diluted) to $510,707 or $0.17 per share (basic and
diluted). The rise in net loss can be attributed to lower experience refunds
brought about by higher death benefits ceded to reinsurers, more rapid
amortization of the present value of insurance in force and an increase in
general & administrative expenses of 125%. The net loss was further increased by
the establishment of a deferred tax asset valuation allowance of $144,387. The
net loss in 1998 as well as the net loss for 1997 included a deduction of $4,071
for preferred dividends paid.
Six Months Ended June 30, 1998 and 1997
Revenues
The following table sets forth the components of the Company's revenues for the
periods indicated:
<TABLE>
<CAPTION>
Six Months Ended March 31,
1998 1997
---------- ----------
<S> <C> <C>
Insurance services $2,712,222 $1,380,531
Investment services 1,216,108 1,072,776
Other 45,211 26,801
---------- ----------
Total revenues $3,973,541 $2,480,108
</TABLE>
Total revenues increased 60% from $2,480,108 for the first half of 1997 to
$3,973,541 during the first half of 1998. The increase resulted from the
acquisition in full of Rushmore Life Insurance Company in April 1997. This
increase included $1,615,151 in insurance policy income during the first half of
1998 compared to $815,276 during the first half of 1997. This insurance policy
income represents Rushmore Life's quota share of policy income under coinsurance
agreements. Investment income also increased from $516,603 to $1,097,071 as a
result of that acquisition.
Expenses
Insurance Services expense components changed substantially due to the
consolidation of Rushmore Life beginning in April 1997. In the first quarter of
1997, insurance service expenses included only the loss of the Company's
minority ownership in Rushmore Life, accounted for on the equity method. That
loss amounted to $19,264. The first three months of 1997 included equity in
losses of subsidiary, whereas the first three months of 1998 included the
consolidated operations of Rushmore Life. As a result of consolidating the
results of Rushmore Life for the entire six months ended June 30, 1998 and
consolidating only the second quarter 1997, insurance benefits and expenses
increased proportionately. The consolidated operations of Rushmore Life include
expense categories of benefits, claims and losses, representing claims against
policies coinsured by Rushmore Life in the amount of $1,128,575 during the first
half of 1998 compared to $774,985 for the same period in 1997. Amortization of
deferred acquisition costs increased $345,666 to $428,863 and amortization of
present value of insurance in force increased 573,649. These increases were
offset by other insurance services expenses and policyholder benefits which
increased only 20%. Deferred acquisition costs are recorded for purposes of
generally accepted accounting principles as an asset consisting of the
commissions and other costs of underwriting a new insurance policy and are
amortized over the life of the policy. Such payments are treated as an expense
under statutory accounting principles applicable to insurance companies,
resulting in different earnings patterns.
Investment services expenses increased 10% from $938,481 to $1,032,252.
Commissions paid as a percentage of commission revenue decreased from 89% in
1997 to 88% in 1998. Direct overhead associated with investment services
increased 48% from $36,713 to $54,183. This was primarily due to
<PAGE> 7
increases in staff that resulted in increases in quote service and telephone
expenses of $8,983 and $5,911 respectively.
General and administrative expenses increased 88% from $377,460 to $708,415 due
to increases in staff and office space. Payroll and rent expenses increased
$183,353 and $88,472 respectively.
Operating income (loss)
The Company's operating loss for the first six months of 1998 of $638,223
represents an increase of $392,380 from the loss of $245,843 for the first six
months of 1997. The Company's net loss applicable to common shareholders for the
first two quarters of 1998 increased $452,819 from $203,854 or $0.13 per share
(basic and diluted) to $656,673 or $0.26 per share (basic and diluted). The net
losses in 1998 and 1997 included deductions of $8,141 for preferred dividends
paid. In the first quarter of 1997, insurance services expenses included only
the loss of the Company's minority ownership in Rushmore Life, accounted for on
the equity method, whereas the first three months of 1998 included the
consolidated operations of Rushmore Life. Excluding intercompany expenses and
revenues, Rushmore Life reported a net loss of $80,534 during the first six
months of 1998 compared to a net income of $33,707 for the second quarter of
1997. The net loss was further increased by the establishment of a deferred tax
asset valuation allowance of $144,387. The increase in the Company's net loss
was also the result of increases in general and administrative expenses of
$330,955. Theses increases in expenses were anticipated as the Company began
implementing its business plan.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither Rushmore Financial Group, Inc. nor its subsidiaries is a party to any
pending legal proceedings which management believes would have a material effect
upon the operations or financial condition of Rushmore Financial Group, Inc.
Item 2. Changes in Securities and use of proceeds
Initial Public Offering and Use of Proceeds
The Company completed its initial public offering of common stock in April 1998,
issuing 815,341 shares of Common Stock at $5.50 per share (total of $4,484,375).
The proceeds of such offering have been applied or allocated in the following
manner:
<PAGE> 8
Use of Proceeds Through June 30, 1998
<TABLE>
<S> <C>
Offering costs
Underwriters fee $ 358,750
Legal fees 188,442
Accounting 116,377
Printing 96,481
Other 144,794
Contribution to Rushmore Life 300,000
Repayment of payable to Rushmore Life 381,825
Repayment of collateral loan to Rushmore Life 83,693
Repayment of term loans 85,000
Contribution to Rushmore Securities 98,200
Contribution to Rushmore Agency 51,000
Contribution to Rushmore Advisors 20,000
Leasehold improvements, equipment and software 26,601
General working capital 288,325
----------
Disposition of proceeds through June 30, 1998 2,239,488
Planned contribution to Rushmore Agency to support the addition of new
agents through internal growth and acquisition 1,271,333
Planned contribution to Rushmore Securities to support the addition of new
representatives through internal growth and acquisitions 488,975
Planned contribution to Rushmore Advisors to support the addition of
marketing and advisory personnel 391,180
Planned leasehold improvements, equipment and software 93,399
----------
Gross proceeds - 815,341 shares at $5.50 per share $4,484,375
----------
</TABLE>
Item 3. Defaults Upon Senior Securities - Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on July 17, 1998.
PROPOSAL 1 - ELECTION OF DIRECTORS
The following table provides information as of June 1, 1998, with respect to
each of the Company's directors continuing in office and nominees for director.
<TABLE>
<CAPTION>
Name Age Served as
- ---- --- ---------
Director
--------
Since
-----
<S> <C> <C>
DIRECTOR NOMINEES
CLASS OF NOMINEES FOR TERMS EXPIRING IN 2001
Frederick E. (Fritz) Mowery 42 1996
William C. Keane 68
Charles M. Duke, Jr 62
DIRECTORS CONTINUING IN OFFICE
CLASS OF DIRECTORS WITH TERMS EXPIRING IN 1999
D. M. (Rusty) Moore, Jr 48 1990
Timothy J. Gardiner 43 1997
James M. Fehleison 39 1998
CLASS OF DIRECTORS WITH TERMS EXPIRING IN 2000
James W. Clark 46 1991
Mark S. Adler 44 1997
Gayle C. Tinsley 67 1998
</TABLE>
<PAGE> 9
PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF AUDITORS
The holders of Common Stock were also asked to ratify the Board of Directors
appointment of KPMG Peat Marwick LLP as the Company's independent auditors for
the year ending December 31, 1998.
The following table summarizes the votes cast regarding these proposals.
<TABLE>
<CAPTION>
Proposal For Against Abstain Delivered Exception & No
Not Voted Vote
<S> <C> <C> <C> <C> <C>
1
Mowery 1,952,910 - 22,258 - 1,009,449
Keane 1,952,523 - 22,645 - 1,009,449
Duke 1,952,910 - 22,258 - 1,009,449
2 1,952,510 1,000 21,658 - 1,009,449
</TABLE>
Item 5. Other Information - Not applicable
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits. Exhibit 10 - Material Contracts
Exhibit 11 - Earnings per share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8k. - None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Rushmore Financial Group, Inc.
Dated: August 14, 1998 By /s/ Robert W. Hendren
------------------------------------------
By Robert W. Hendren, CFO
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C> <C>
Ex. 10 Material Contracts
Ex. 11 Earnings Per Share
Ex. 27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10 - Material Contracts
RUSHMORE INSURANCE SERVICES, INC.
650 ONE GALLERIA TOWER
13355 NOEL ROAD
DALLAS, TEXAS 75240
July 16,1998
Michael G. Brown, d/b/a
Future Benefits of America
10501 N. Central Expressway
Suite 101
Dallas, Texas 75231
Dear Mr. Brown:
This letter (i) will serve as an addendum and supplement to the
Affiliation Agreement, which is duly executed and attached hereto as Exhibit
"A", and (ii) sets forth the terms under which Rushmore Insurance Services, Inc.
("RISI"), an affiliate of Rushmore Financial Group, Inc. ("RFGI"), will engage
in a joint marketing program with Michael G. Brown, d/b/a Future Benefits of
America ("FBA") and a process of determining a business combination between RISI
and FBA.
1. FBA represents that it is a life and health insurance agency duly
registered with the Texas Department of Insurance and conducting business in the
states of Texas, Oklahoma, Louisiana, New Mexico, Colorado, Arizona, Utah,
Nevada, Montana and North Dakota through agency designations by Provident
American Insurance Company and Southwestern Life Insurance Company, and that it
is qualified to conduct business in the states in which it now operates.
2. RISI represents that it is a life and health insurance agency duly
registered with the Texas Department of Insurance and conducting business in 39
states through agency designations from more than 40 life insurance companies,
including Legion Insurance Company ("Legion"), for which RISI markets policies
through its affiliation with the American Financial Freedom Association
("AFFA").
3. RISI hereby appoints FBA as an Executive National Marketing Director
of RISI and authorizes FBA to establish a Career Brokerage Division within RISI
to market the insurance policies and products in all states where FBA is
qualified of all insurers for which RISI serves as agent, upon completion of
enrollment of all FBA agents and subagents with such insurers and in such
states. FBA will bear the cost of such state application fees.
4. Prior to engaging in marketing of RISI products, each agent of FBA
in order to become approved with RISI, must sign an Affiliation Agreement in the
form attached hereto as Exhibit A, and pay a $25 processing fee ($75 if
previously unlicensed). RISI, FBA, and RISI's Career Partners Division shall
work during the next 90 days to develop an agent's agreement for common use by
agents in all three units. However, nothing herein shall cause agents of FBA to
become direct agents of RISI, and their primary affiliation shall be and remain
as contract agents of FBA only during the term of this Agreement, and FBA shall
have a superior and prior relationship to its agents.
5. The parties will actively review the feasibility and desirability of
a business combination between RISI and FBA by which all of the revenue and
expense of both will pass through and inure to the benefit of RFGI. Such
combination would occur before the end of 1998, unless factors arise in the
meantime indicating a later effective date. The terms of any such combination
shall supersede the provisions of this Agreement.
6. RISI will grant to the Career Partners Division of RISI an
additional 1% override commission on all first year premiums produced by FBA
from sale of Legion health insurance policies, and RISI's Career Partner
Division will pay to FBA a 1% additional override commission on all first year
premiums produced by the Career Partners Division on Legion health insurance
policies.
<PAGE> 2
7. Pending a business combination, FBA and its agents and employees
will remain as independent agents, and neither RISI nor RFGI shall have any
responsibility for any tax withholding or employee benefits to the employees of
FBA and its agents. No partnership, joint venture or trust is created hereby,
and the parties are and shall remain independent contractors having only the
rights and obligations created by this Agreement. FBA will pay all of its own
rent, salaries, postage, advertising, newsletter, lead costs and similar and
other general and administrative costs.
8. For sales by RISI and FBA of policies issued by Legion Insurance
Company, RISI shall pay commission received by it on first year and renewal
premiums in accordance with the schedule set forth in Exhibit B.
9. FBA and RISI will instruct their agents not to interfere with the
efforts of each other in the recruitment of new leads for insurance or in the
termination and re-writing of any policy.
10. FBA and Rushmore will review and adjust future overhead expenses
debted to FBA in order to allow for increased FBA administrative
responsibilities resulting from growth in sales of RISI products.
11. This Agreement may be terminated by either party with 90 days
advance notice, unless termination is based upon an alleged material default by
the other party, in which case termination shall occur 30 days after notice is
given of such default unless the default is cured within such 30 day period.
12. FBA will use its best efforts to see that RISI is appointed as a
managing general agent of Provident American Insurance Company subject to
meeting all licensing requirements.
13. Each party to this Agreement shall bear its own legal, accounting
and other related expenses in connection with the transactions provided for
herein. Each of the parties hereto agrees to hold the other harmless from and
against any liability for broker's or finder's fees in connection with the
purchase and sale provided for herein arising out of contracts, express or
implied, which may be asserted against the noncontracting parties.
14. This Agreement constitutes the entire agreement among the parties
and supersedes all prior agreements and understandings, oral and written, among
the parties with respect to the subject matter hereof, and the parties are not
bound by any agreements, understandings, or conditions other than as expressly
set forth herein.
15. This Agreement may not be assigned by any party hereto without the
prior written consent of the other parties. All of the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective parties hereto.
16. The failure of any party to act to enforce rights hereunder shall
not be deemed a waiver and shall not preclude enforcement of any rights
hereunder. No waiver of any term or provision of this Agreement on the part of a
party shall be effective for any purpose whatsoever unless such waiver is in
writing and signed by such party.
17. This Agreement shall be governed by, interpreted, and enforced in
accordance with the laws of the State of Texas, without regard to the principles
of conflicts of laws.
18. The representations, warranties, covenants, and agreements
contained in this Agreement are for the sole benefit of the parties hereto and
their respective successors, permitted assigns, heirs, executors,
administrators, and legal representatives, and shall not be construed as
conferring and are not intended to confer any rights on any other persons.
<PAGE> 3
19. If any provision of this Agreement is held to be illegal, invalid
or unenforceable under present or future laws effective during the term hereof,
such provision shall be fully severable. This Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid or unenforceable provision there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
19. This Agreement may be amended or modified only by an agreement in
writing signed by all of the parties hereto.
Any alleged uncertainty or ambiguity in this Agreement shall not be
construed for or against a party based on attribution of drafting to such party.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed, or through their duly authorized officers have duly
executed, this Agreement effective as of the date first above written.
FUTURE BENEFITS OF AMERICA
By: /s/ Michael G. Brown
----------------------------------
Michael G. Brown
RUSHMORE INSURANCE SERVICES, INC.
By: /s/ D. M. Moore, Jr.
----------------------------------
D.M. Moore, Jr., CEO
And by: /s/ Richard C. Lee
------------------------------
Richard C. Lee, Director
Career Partners Division
<PAGE> 1
Exhibit 11 - Earnings per share
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Income (loss) from continuing operations (648,532) (169,720)
Less dividends on preferred stock (8,141) (8,142)
Income (loss) from continuing operations applicable
to common shareholders (656,673) (177,862)
Less discontinued operations 0 (25,992)
Net (loss) applicable to common shareholders (656,673) (203,854)
Weighted average common shares outstanding 2,566,240 1,625,343
Weighted average options vested 97,248 155,120
Net income (loss) per common share
Basic $ (0.26) $ (0.13)
Diluted $ (0.26) $ (0.13)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 803,638
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 112,813
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 34,240,982
<CASH> 3,011,756
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,143,820
<TOTAL-ASSETS> 37,656,886
<POLICY-LOSSES> 31,692,322
<UNEARNED-PREMIUMS> 1,079,905
<POLICY-OTHER> 171,960
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 2,295
0
156,870
<COMMON> 30,666
<OTHER-SE> 3,779,087
<TOTAL-LIABILITY-AND-EQUITY> 37,656,886
1,615,151
<INVESTMENT-INCOME> 1,097,071
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 1,261,319
<BENEFITS> 1,128,575
<UNDERWRITING-AMORTIZATION> 428,863
<UNDERWRITING-OTHER> 611,512
<INCOME-PRETAX> (645,772)
<INCOME-TAX> 2,760
<INCOME-CONTINUING> (648,532)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (648,532)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
<RESERVE-OPEN> (10,072)
<PROVISION-CURRENT> 2,760
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 86,558
<RESERVE-CLOSE> (87,536)
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
