<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarter ended March 31, 1997
PROFESSIONAL BENEFITS INSURANCE COMPANY
(EXACT NAME OF SMALL BUSINESS AS SPECIFIED IN ITS CHARTER)
TEXAS 74-2072635
(STATE OR OTHER (IRS EMPLOYER
JURISDICTION INCORPORATION IDENTIFICATION NUMBER)
OR ORGANIZATION)
COMMISSION FILE NUMBER: 0-22344
10835 ROCKLEY ROAD
HOUSTON, TEXAS 77099
- --------------------------------------- -----
(Address or principal executive office) (Zip Code)
(281)721-1800
(Registrant's telephone number)
Check mark whether the Issuer (1) filed all reports required by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 No
--- ---
The number of shares of Class A common stock the Registrant, par value
$1.22 per share, issued and outstanding at March 31, 1997 was 587,129.
The number of shares of Class B common stock the Registrant, par value
$1.22 per share, issued and outstanding at March 31, 1997 was 73,524.
Transitional Small Business Disclosure Format: Yes No
--- ---
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PROFESSIONAL BENEFITS INSURANCE COMPANY
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Balance Sheets - March 31, 1997 and December 31, 1996............................ 3
Income Statements - Three Months Ended
March 31, 1997 and 1996....................................................... 5
Statements of Cash Flows - Three Months Ended
March 31, 1997 and 1996....................................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................... 7
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings........................................................................ 11
ITEM 2. Changes in Securities.................................................................... 11
ITEM 3. Defaults Upon Senior Securities.......................................................... 11
ITEM 4. Submission of Matters to a Vote of Security Holders...................................... 11
ITEM 5. Other Information........................................................................ 11
ITEM 6. Exhibits and Reports on Form 8-K......................................................... 11
SIGNATURES........................................................................................ 12
</TABLE>
<PAGE> 3
Part I, Item 1. Financial Statements
PROFESSIONAL BENEFITS INSURANCE COMPANY
BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
------
MARCH 31, 1997 DECEMBER 31, 1996*
(Unaudited)
-------------- ------------------
<S> <C> <C>
INVESTMENTS
Fixed maturities, at market (amortized
cost of $2,088,714 - 1997 and
$1,935,408 - 1996) $ 2,081,534 $ 1,927,526
Common stock mutual funds, at market 0 0
Short-term investments, at cost 957,655 830,898
------------- -------------
Total Investments 3,039,189 2,758,424
CASH 51,474 729,252
REINSURANCE RECOVERABLE 891,184
Current recoverable 50,256
Future recoverable 744,133
ACCRUED INVESTMENT INCOME 7,200 10,763
PREMIUM DUE AND UNCOLLECTED 147,632 179,836
ACCOUNTS AND NOTE RECEIVABLE 59,037 58,051
LAND AND BUILDING, At Cost
(net of accumulated depreciation of
$464,460 - 1997 and $454,906 - 1996) 488,328 497,882
FURNITURE AND EQUIPMENT, At Cost
(net of accumulated depreciation of
$341,712 - 1997 and $328,861 - 1996) 238,254 226,940
GUARANTY FUND ASSESSMENTS 0 3,654
DEFERRED TAX BENEFIT 33,000 28,000
FEDERAL INCOME TAX RECEIVABLE 406,333 207,000
OTHER ASSETS, At Cost 20,309 20,008
------------- -------------
Total Assets $ 5,285,145 $ 5,610,994
============= =============
</TABLE>
*The amounts for December 31, 1996 were derived from amounts included in the
audited financial statements filed as part of the Company's 1996 Form 10-KSB.
3
<PAGE> 4
Part I, Item 1. Financial Statements (continued)
PROFESSIONAL BENEFITS INSURANCE COMPANY
BALANCE SHEETS (cont'd.)
MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, 1997 DECEMBER 31, 1996*
(Unaudited)
-------------- ------------------
<S> <C> <C>
LIABILITIES
Future policy benefits $ 944,629 $ 1,048,334
Policy claims 2058682 1905000
Premium received in advance 189,311 185,706
Unearned premium 123,473 56,324
-------------- --------------
3,316,095 3,195,364
Reinsurance payable 53,057 57,463
Deferred Tax Liability 0 0
Other liabilities 264,910 311,397
-------------- --------------
Total Liabilities 3,634,062 3,564,224
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock
Class A voting, $1.22 par value; 1,022,668
authorized shares; 587,129 and issued and
outstanding in 1997 and 1996 716,297 716,297
Class B nonvoting, $1.22 par value; 136,720
authorized shares; 73,524 issued and
outstanding in 1997 and 1996 89,699 89,699
Additional paid-in capital 536,214 536,214
Unrealized gain(loss) on investments
(net of deferred income tax benefits of
$7,700 - 1997 and $2,600 - 1996) (13,928) (5,182)
Retained earnings 322,801 709,742
-------------- --------------
Total Stockholders' Equity 1,651,083 2,046,770
-------------- --------------
Total Liabilities and Stockholders' Equity $ 5,285,145 $ 5,610,994
============== ==============
</TABLE>
*The amounts for December 31, 1996 were derived from amounts included in the
audited financial statements filed as part of the Company's 1996 Form 10-KSB.
4
<PAGE> 5
Part I, Item 1. Financial Statements (continued)
PROFESSIONAL BENEFITS INSURANCE COMPANY
INCOME STATEMENTS
QUARTERS ENDING MARCH 31, 1997 AND MARCH 31, 1996
<TABLE>
<CAPTION>
1997 1996
3 MONTHS 3 MONTHS
ENDED 3/31/97 ENDED 3/31/96
(Unaudited) (Unaudited)
------------- --------------
<S> <C> <C>
REVENUES
Premium earned $ 2,866,300 $ 2,353,680
Less reinsurance ceded 182,413 101,536
-------------- --------------
Net premium earned 2,683,887 2,252,144
Net investment income 41,208 52,201
Other income 1,212 30,688
-------------- --------------
Total Revenues 2,726,307 2,335,033
BENEFITS, CLAIMS AND EXPENSES
Benefits and claims 2,594,665 1,781,041
Less reinsurance recoverable 155,229 132,316
-------------- --------------
Net benefits and claims 2,439,436 1,648,725
Commissions 281,953 92,253
Underwriting, acquisition, insurance, and
administrative expenses 504,588 457,232
Taxes, licenses, and fees 86,604 23,689
-------------- --------------
Total Benefits, Claims and Expenses 3,312,581 2,221,899
-------------- --------------
INCOME(LOSS) BEFORE INCOME TAX (586,274) 113,134
INCOME TAX PROVISION(BENEFIT) (199,333) 38,466
-------------- --------------
NET INCOME(LOSS) ($ 386,941) $ 74,668
============== ==============
NET INCOME(LOSS) PER SHARE
(Based on Weighted Average Shares of
Common Stock Outstanding during the
year of 660,653 - 1997 and 660,653 - 1996) ($ 0.59) $ 0.11
</TABLE>
5
<PAGE> 6
Part I, Item 1. Financial Statements (continued)
PROFESSIONAL BENEFITS INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
QUARTERS ENDING MARCH 31, 1997 AND MARCH 31, 1996
<TABLE>
<CAPTION>
1997 1996
3 MONTHS 3 MONTHS
ENDED 3/31/97 ENDED 3/31/96
(Unaudited) (Unaudited)
-------------- --------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Premium $ 2,782,438 $ 2,291,974
Net investment income 44,771 16,224
Other income 225 33,011
Benefits and claims (2,292,664) (1,757,076)
Commission (268,002) (107,237)
Underwriting, acquisition, insurance, and
administrative expenses (625,869) (552,126)
-------------- --------------
Net cash provided by (used in) operating activities (359,101) (75,230)
-------------- --------------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from the sale or maturing of investments 7,487 100,000
Purchase of investments (301,998) 0
Purchase of furniture and equipment (24,166) (42,365)
-------------- --------------
Net cash provided by (used in) investing activities (318,677) 57,635
-------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES
Principal payments on capital lease payable 0 (4,899)
-------------- --------------
Net cash provided by (used in) investing activities 0 (4,899)
-------------- --------------
INCREASE(DECREASE) IN CASH (677,778) (22,494)
CASH, BEGINNING OF PERIOD 729,252 37,252
-------------- --------------
CASH, END OF PERIOD $ 51,474 $ 14,758
============== ==============
</TABLE>
6
<PAGE> 7
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note 1: Basis of Presentation
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the Company's financial
position as of March 31, 1997 and December 31, 1996, the results of operations
and its cash flow for the periods ended March 31, 1997 and March 31, 1996, and
are of a normal recurring nature.
7
<PAGE> 8
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Change in revenue for the 1st Quarters, 1997 and 1996 are shown below:
<TABLE>
<CAPTION>
===================================================================================================
3 Mths Ended 3 Mths Ended
3/31/97 3/31/96
<S> <C> <C>
===================================================================================================
Total Revenue $2,726,307 $2,335,033
- ---------------------------------------------------------------------------------------------------
Increase(Decrease) in Revenue Compared to Preceding Period $391,274 $145,170
- ---------------------------------------------------------------------------------------------------
Percentage of Change Compared to Preceding Period 16.8% 6.6%
===================================================================================================
</TABLE>
The primary components of revenue are premium and net investment income. The
increase in revenue from 1996 is primarily due to increases in premium income
which is the result of new association business and increased sales of group
accident and health insurance.
Change in premium revenue for the 1st Quarters, 1997 and 1996 are shown below:
<TABLE>
<CAPTION>
===================================================================================================
3 Mths Ended 3 Mths Ended
3/31/97 3/31/96
===================================================================================================
<S> <C> <C>
Net Earned Premium $2,683,887 $2,252,144
- ---------------------------------------------------------------------------------------------------
Increase(Decrease) in Premium Compared to Preceding Period $431,743 $138,049
- ---------------------------------------------------------------------------------------------------
Percentage of Change Compared to Preceding Period 19.2% 6.5%
===================================================================================================
</TABLE>
In the 1st Quarter, 1997 premium increased by $431,743 from the 1st Quarter,
1996. This increase in premium is due to increasing sales of group accident
and health insurance, dental insurance and the addition of new associations and
groups which the Company contracted with to provide major medical insurance.
Change in net investment income for the 1st Quarters, 1997 and 1996 are shown
below:
<TABLE>
<CAPTION>
===================================================================================================
3 Mths Ended 3 Mths Ended
3/31/97 3/31/96
===================================================================================================
<S> <C> <C>
Total Net Investment Income $41,208 $52,201
- ---------------------------------------------------------------------------------------------------
Increase(Decrease) in Net Investment Income Compared to
Preceding Period $(10,993) $3,936
- ---------------------------------------------------------------------------------------------------
Percent Change in Net Investment Income (21.1%) 8.2%
===================================================================================================
</TABLE>
In the three months ending March 31, 1997 investments experienced a 21.1%
decrease in total net investment income due to maturing bonds which have not
yet been reinvested. The proceeds are currently held as money market funds.
This has resulted in a decrease in the interest income on the portfolio.
8
<PAGE> 9
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Change in general and administrative expenses for the 1st Quarters, 1997 and
1996 are shown below:
<TABLE>
<CAPTION>
===================================================================================================
3 Mths Ended 3 Mths Ended
3/31/97 3/31/96
===================================================================================================
<S> <C> <C>
General & Admin. Expenses $504,588 $457,232
- ---------------------------------------------------------------------------------------------------
Increase(Decrease) in General & Admin. Expenses Compared
- ---------------------------------------------------------------------------------------------------
to Preceding Period $47,356 $(57,356)
- ---------------------------------------------------------------------------------------------------
Percentage of Change Compared to Preceding Period 10.4% (11.1%)
===================================================================================================
</TABLE>
The increase in general and administrative expenses is primarily due to
expenses incurred during the prospective acquisition of another company. The
Company incurred additional legal, accounting and actuarial fees associated
with analyzing the target company and requesting approval from the State
Insurance Department. Management subsequently decided not to proceed with the
acquisition.
Change in commission expense for the 1st Quarters, 1997 and 1996 are show
below:
<TABLE>
<CAPTION>
===================================================================================================
3 Mths Ended 3 Mths Ended
3/31/97 3/31/96
===================================================================================================
<S> <C> <C>
Total Commission Expense $281,953 $92,253
- ---------------------------------------------------------------------------------------------------
Increase(Decrease) in Commission Expense Compared to
Preceding Period $189,700 $30,178
- ---------------------------------------------------------------------------------------------------
Percentage of Change Compared to Preceding Period 205.6% 48.6%
===================================================================================================
</TABLE>
The increase in commission expense is due primarily to the higher commission
rates paid on the Company's new business. Commission rates vary depending on
the type of insurance policy written as well as first year and renewal year
policies. The Company has written a large amount of new business with higher
first year commission rates. Major medical insurance has higher first year
commission and dental insurance has a higher commission structure than other
lines of business which the Company markets.
9
<PAGE> 10
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
LIQUIDITY
All funds in excess of immediate cash needs are invested in short-term money
market funds, Federal Loan Mortgage bonds, bond funds and certificates of
deposits. The current allocation of funds is fixed maturities 67.3%, cash 1.7%
and short- term investments 31.0%.
The three months ending March 31, 1997 cash flow decreased by $677,778. This
decrease is due to increasing premium tax, commission and acquisition expenses
resulting from increased sales of insurance to new blocks of business.
The Company does not expect to declare any dividends on its stock in the
foreseeable future. No dividends have been declared or paid in the prior four
years.
CAPITAL RESOURCES
PBIC currently does not have any outstanding debts. PBIC does not anticipate
the need for any substantial new capital or debt in the foreseeable future.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES 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 Form 8-K/A was filed April 3, 1997 dated February 14, 1997.
11
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on it's behalf by the undersigned
thereunto duly authorized.
PROFESSIONAL BENEFITS INSURANCE COMPANY
Date May 13, 1997 /s/ Jerry O. Ray
---------------- ---------------------------------------------
Signature
Jerry O. Ray - President
Date May 13, 1997 /s/ Sherrie Mark
---------------- ---------------------------------------------
Signature
Sherrie Mark - Senior Staff Accountant
12
<PAGE> 13
EXHIBIT INDEX
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 2,081,534
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 488,328
<TOTAL-INVEST> 3,039,189
<CASH> 51,474
<RECOVER-REINSURE> 794,389
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 5,285,145
<POLICY-LOSSES> 3,003,311
<UNEARNED-PREMIUMS> 123,473
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 805,996
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,285,145
2,866,300
<INVESTMENT-INCOME> 41,208
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 1,212
<BENEFITS> 2,594,665
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 873,145
<INCOME-PRETAX> (586,274)
<INCOME-TAX> (199,333)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (386,941)
<EPS-PRIMARY> (.59)
<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>
