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 March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition Period from to
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Commission file number 000-24057
Rushmore Financial Group, Inc.
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(Exact name of registrant as specified in its charter)
Texas 75-2375969
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(State of Incorporation) (I. R. S. Employer Identification No.)
13355 Noel Road, Suite 650, Dallas, Texas 75240
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972-450-6000
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(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
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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
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State the number of shares outstanding of each of the issuer's classes
of common equity as of March 31, 1998: 2,169,276 shares of common stock, $0.01
par value.
Transitional Small Business Disclosure Format;
Yes No XXX
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<PAGE>
<TABLE>
<CAPTION>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
BALANCE SHEETS
December 31, March 31,
1997 1998
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(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
Investments
Cash and short-term investments $1,219,051 $989,105
Amounts on deposit with reinsurer 30,719,662 31,494,540
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Total investments 31,938,713 32,483,645
Deferred policy acquisitions costs 2,084,312 1,738,556
Notes, accounts receivable and uncollected premiums 696,100 651,700
Prepaid expenses and advances 80,098 77,157
Equipment, net of accumulated depreciation 110,877 108,599
Goodwill 155,847 151,854
Other assets and intangibles 196,341 439,624
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Total assets $35,262,288 $35,651,136
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LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES AND SHAREHOLDERS' EQUITY
Future policy benefits $86,192 $86,379
Universal life contract liabilities 31,905,299 31,666,156
Claims payable 308,866 101,753
Notes payable 87,295 87,295
Current federal income taxes 170,938 0
Net deferred federal income taxes 0 212,491
Other liabilities 706,039 1,408,049
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Total liabilities 33,264,629 33,562,123
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Shareholders' Equity
Preferred stock-9% cumulative preferred stock, $10 par value,
4,300 shares issued and outstanding in 1997 and 1998 43,000 43,000
Preferred stock-Series A cumulative preferred stock, $10 par
value, 13,792 shares issued and outstanding in 1997 and
1998 137,920 137,920
Common stock-$0.01 par value, 10,000,000 shares authorized,
2,105,036 shares issued and outstanding at December 31,
1997; 10,000,000 shares authorized and 2,169,276 issued
and outstanding at March 31, 1998 20,998 21,693
Common stock subscribed, 4,567 shares at $1.92 per share
at December 31, 1997 46 0
Additional paid in capital 2,487,116 2,495,244
Treasury stock (78,881) (78,881)
Retained earnings (deficit) (501,202) (427,072)
Unrealized gains (losses) (110) 38
Shareholder/affiliate loans
Common stock subscriptions receivable (8,769) 0
Shareholder loans (102,460) (102,930)
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Total shareholders' equity 1,997,659 2,089,012
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $35,262,288 $35,651,136
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</TABLE>
See accompanying notes to financial statements
2
<PAGE>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
STATEMENTS OF INCOME
For the Three Months Ended March
31,
--------------------------------
1997 1998
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(Unaudited) (Unaudited)
Revenue
Revenue from Insurance Services
Insurance policy income $ (57,452) $ 609,890
Net Investment income 523,917
Agent Management fee 24,252 0
Revenue from Investment Services
Commissions and fees 504,224 499,824
Asset management 27,297 45,655
Other 5,465 15,968
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Total revenues 503,786 1,695,254
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Expenses
Insurance Services Expenses
Other insurance services expenses 15,048 316,974
Policyholder benefits 52,748
Amortization of deferred policy
acquisition costs 459,106
Investment services expenses
Commission expense 440,864 438,502
Other investment services expenses 84,761 157,321
General and administrative 76,233 152,933
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Total expenses 616,906 1,577.584
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Operating income (loss) (113,120) 117,670
Interest expense 1,060 5,351
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Income (loss) from continuing operations (114,180) 112,319
Discontinued operations (net) (25,992) 0
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Income (loss) before income taxes (140,172) 112,319
Provision for income taxes 0 38,189
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Net income (loss) $ (140,172) $ 74,130
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Net income (loss) applicable to common
shareholders $ (144,243) $ 70,059
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Net income (loss) per share of common stock
after dividends on Preferred Stock
Basic ($ 0.10) $ 0.03
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Diluted ($ 0.10) $ 0.03
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See accompanying notes to financial statements
3
<PAGE>
<TABLE>
<CAPTION>
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
For the Three Months Ended
1997 1998
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(Unaudited) (Unaudited)
<S> <C>
Cash Flows from operating activities
Net income (loss) $(82,720) $ 74,131
Adjustments to reconcile net (loss) to net
cash provided (used) by
operating activities:
Depreciation and amortization 3,702 9,522
Change in assets and liabilities net of
effects from purchase of Rushmore Life:
(Increase) decrease in assets:
Deposits 0 (93)
Commissions and fee receivable 0 31,425
Prepaid expenses (9,451) 3,034
Deferred federal income tax 0 212,491
Other assets 5,490 0
Deferred policy acquisition costs 0 345,756
Deposits with reinsurer 0 (774,878)
Accounts payable 19,552 307,665
Accrued liabilities (18,191) 407,320
Future policy benefits 0 (994,199)
Universal Life liabilities 0 674,994
Claims payable 0 (207,133)
Income tax liability 0 (170,938)
Deferred revenues 0 80,270
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Net cash flows provided (used) by operating activities (81,618) (633)
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Cash flows from investing activities
Loans to officers and affiliate 60,182 8,299
Purchase of equipment (1,305) (3,251)
Increase in equity investment 0 110
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Net cash flows provided (used) by investing activities 58,877 5,158
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Cash flows from financing activities
Proceeds from sale of Common Stock 176 12,848
Costs of stock offering 0 (243,283)
Preferred Stock dividends paid (4,071) (4,071)
Borrowings under term loans 40,009 0
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Net cash flows provided (used) by financing activities 36,114 (234,506)
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Change in cash balances 13,373 (229,981)
Cash at beginning of year 117,738 1,218,363
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Cash at end of year $131,111 $988,382
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Supplemental Disclosure of Cash Flow Information
Cash paid for interest 1,109 1,786
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Cash paid for income taxes 50,000 86,558
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</TABLE>
See accompanying notes to financial statements
4
<PAGE>
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
condensed 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 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.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Three Months Ended March 31, 1997 and 1998
Revenues
The following table sets forth the components of the Company's revenues for the
periods indicated:
Three Months Ended March 31,
1997 1998
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Insurance services $(33,200) $1,133,807
Investment services 531,521 545,479
Other 5,465 15,968
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Total revenues $503,786 $1,695,254
Total revenues increased 237% from $503,786 for the first quarter of 1997 to
$1,695,254 during the first quarter of 1998. The increase resulted from the
acquisition in full of Rushmore Life Insurance Company in April 1997. This
increase included $609,890 in insurance policy income representing Rushmore
Life's quota share of policy income under coinsurance agreements and $523,917 in
net investment income.
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. The
first three months of 1997 included equity in subsidiary loss, whereas the first
three months of 1998 included the consolidated operations of Rushmore Life. 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 $52,748, amortization of deferred acquisition costs of
$459,106 and other insurance company expenses of $308,974. 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. During the first
quarter of 1998 the average credited interest rates on outstanding universal
life policies was 7.42% as compared to 7.01% for the first quarter of 1997.
5
<PAGE>
Investment services expenses increased 13% from $525,625 to $595,823.
Commissions paid as a percentage of commission revenue decreased from 88.4% in
1997 to 87.7% in 1998. Direct overhead associated with investment services
increased 86% from $84,761 to $157,321. This was primarily due to increases in
staff that resulted in an increase in wages and benefits of $33,459 or 86%. The
addition of staff necessitated leasing additional office space resulting in an
increase in office rent of $22,593. In addition insurance expenses increased
$14,073 or 77% due to the net premium on an errors and omissions insurance
policy implemented in 1997 offset by increased collections from representatives
for their share of such premiums.
General and administrative expenses increased 101% from $76,233 to $152,933 due
to increases in staff and office space.
Operating income (loss)
The Company's operating income for the first quarter of 1998 of $117,670
represents an increase of $230,790 from the loss of $113,120 for the first
quarter of 1997. The Company's net income applicable to common shareholders for
the first quarter of 1998 increased $214,302 from a net loss of $144,243 or
$0.10 per share (basic and diluted) to $74,130 or $0.03 per share (basic and
diluted). The net income in 1998 as well as the net loss for 1997 included a
deduction of $4,071 for preferred dividends paid. In the first quarter of 1997,
insurance services expenses included only the loss (or income) of the Company's
minority ownership in Rushmore Life, accounted for on the equity method. The
first three months of 1997 included equity in subsidiary loss, whereas the first
three months of 1998 included the consolidated operations of Rushmore Life.
Rushmore Life reported net income of $188,852.
Subsequent event
In April 1998 the Company completed its initial public offering of common stock,
issuing 815,341 shares at a price of $5.50 per share for a total of $4,484,375.
After deduction of $477,571 in offering costs, $4,006,804 was remitted to the
company. Total costs of the offering are expected to be $904,844.
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 - Not applicable.
Item 3. Defaults Upon Senior Securities - Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders - Not applicable
Item 5. Other Information - Not applicable
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits. Exhibit 11 - Earnings per share
Exhibit 27 - Financial Data Schedule
6
<PAGE>
(b) Reports on Form 8k. - On April 29, l998, Rushmore Financial Group,
Inc. (the "Corporation") appointed the accounting firm of KPMG Peat
Marwick LLP as its independent auditors for the fiscal year ending
December 31, 1997, and chose not to renew the engagement of Cheshier &
Fuller, L.L.P., who served as the Corporation's independent auditors
for the fiscal year ended December 31, l996. There had been no
disagreements with the previous auditors.
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: May 15, 1998 By /s/ Robert W. Hendren
------------------------------------
By Robert W. Hendren, CFO
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11 - Earnings per share
1997 1998
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<S> <C>
Net income (loss) (140,172) 74,130
Dividends on preferred stock 4,071 4,071
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========== =========
Net income (loss) applicable to common share holders (144,243) 70,059
========== =========
Weighted average common shares outstanding 1,437,783 2,147,863
Weighted average options vested 149,167 107,413
Net income (loss) per common share
Basic $ (0.10) $ 0.03
Diluted $ (0.10) $ 0.03
</TABLE>
8
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
</LEGEND>
<CIK> 0000884892
<NAME> Rushmore Financial Group
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 725
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 31,495,265
<CASH> 988,380
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 1,738,556
<TOTAL-ASSETS> 35,614,347
<POLICY-LOSSES> 30,529,551
<UNEARNED-PREMIUMS> 1,222,984
<POLICY-OTHER> 101,753
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 87,295
0
180,920
<COMMON> 21,693
<OTHER-SE> 2,060,363
<TOTAL-LIABILITY-AND-EQUITY> 36,006,928
609,891
<INVESTMENT-INCOME> 523,917
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 561,447
<BENEFITS> 52,748
<UNDERWRITING-AMORTIZATION> 459,106
<UNDERWRITING-OTHER> 308,974
<INCOME-PRETAX> 112,319
<INCOME-TAX> 38,189
<INCOME-CONTINUING> 74,130
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,130
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 68,486
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 86,558
<RESERVE-CLOSE> 212,491
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
