U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) Quarterly report under Section 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to ___________.
Commission file number 0-23178
Equisure, Inc.
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1309882
- --------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
66 New Road, Digswell, Welwyn, Herts, AL6 OAN England
-----------------------------------------------------
(Address of principal executive offices)
(0) 1438 714078
--------------------------
(Issuer's telephone number)
1650 West 82nd Street Suite 1480
Bloomington Minnesota 55431
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report
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 __X__ No ____
As of 9/30/97 there were 11,709,250 shares of the issuer's common stock, par
value $0.001 per share.
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
<PAGE>
EQUISURE, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
Item 1 Condensed consolidated Financial Statements Required by Form 10-QSB
Condensed Consolidated Balance Sheets of Equisure, Inc. and
subsidiaries of September 30, 1997, and December 31, 1996
Condensed Consolidated Statements of Operations of Equisure, Inc. and
subsidiaries for the three months ended September 30, 1997, and 1996
and the nine months ended September 30, 1997 and 1996.
Condensed Consolidated Statement of Stockholders equity for the nine
months ended September 30, 1997
Condensed Consolidated Statements of Cash Flows of Equisure, Inc. and
subsidiaries for the nine months ended September 30, 1997 and September
30, 1996
Notes to Condensed Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Results of Operations and
Financial Condition
PART II OTHER INFORMATION
Item 1 Legal proceedings
Item 2 Changes in securities
Item 3 Defaults upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Exhibits and Reports
Item 6 Other information
Signatures
<PAGE>
EQUISURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
(UNAUDITED)
ASSETS
<S> <C> <C>
Assets:
Investments, available for sale $ -- $ 39,743,785
Cash and cash equivalents 75,479,623 20,489,623
Accrued interest and dividends 1,001,980 158,162
Premiums receivable 6,347,270 2,246,581
Prepaid reinsurance -- 765,834
Due from related parties 9,554,210 12,972,037
Deferred acquisition costs 493,786 292,870
Other assets -- 22,878
Intangible assets 349,084 --
TOTAL ASSETS $ 93,225,953 $ 76,691,770
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Loss reserves 36,383,746 30,033,795
Unearned premiums 2,381,465 2,209,994
Reinsurance premiums payable -- --
Due to related parties 1,180 5,169,092
Income taxes payable 2,500,000 200,000
Accounts payable and accrued expenses 76,430 837,943
Deferred income taxes 2,850,000 1,210,000
TOTAL LIABILITIES $ 44,192,823 $ 39,660,824
STOCKHOLDER'S EQUITY:
COMMON STOCK, PAR VALUE $0.001 AUTHORIZED 50,000,000
SHARE ISSUED AND OUTSTANDING 11,709,250 11,710 11,152
ADDITIONAL PAID-IN CAPITAL 35,634,526 35,635,084
RETAINED EARNINGS 13,386,894 2,953,153
NET OF UNREALIZED DEPRECIATION ON INVESTMENTS AVAILABLE
FOR SALE, NET OF DEFERRED TAXES -- (1,568,443)
TOTAL STOCKHOLDERS' EQUITY $ 49,033,130 $ 37,030,946
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 93,225,953 $ 76,691,770
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
EQUISURE, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
EARNED PREMIUMS ASSUMED $ 8,224,119 2,216,244 22,514,662 4,495,204
CEDED PREMIUMS (17,996) -- (2,359,422) --
NET PREMIUMS 8,206,121 2,216,244 20,155,240 4,495,204
NET INVESTMENT INCOME 424,615 660,942 1,873,437 3,631,315
BROKERAGE INCOME 317,363 -- 489,792 --
TOTAL REVENUES $ 8,948,099 2,877,186 22,518,469 8,125,519
EXPENSES:
LOSSES INCURRED 509,465 -- 2,520,217 --
NET ACQUISITION COSTS 325,887 221,624 2,129,477 449,520
ADMINISTRATIVE EXPENSES 665,227 751,703 2,802,017 2,193,425
FOREIGN CURRENCY EXCHANGE LOSS (221,223) 85,342 (900,475) 387,529
AMORTIZATION OF GOODWILL 3,997 -- 16,173 --
TOTAL EXPENSES $ 1,283,353 1,058,669 6,567,409 3,030,474
INCOME BEFORE INCOME TAXES 7,664,746 1,818,517 15,951,060 5,096,045
INCOME TAXES (2,452,718) (683,000) (5,602,718) (1,732,000)
NET INCOME $ 5,212,028 1,136,617 10,348,342 3,364,045
NET INCOME PER SHARE 0.46 0.20 0.91 0.62
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 11,344,494 5,575,833 11,344,494 5,443,075
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
EQUISURE, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NET UNREALIZED
(DEPRECIATION) NET
ON INVESTMENT RETAINED
COMMON STOCK ADDITIONAL AVAILABLE EARNINGS
SHARES AMOUNT PAID-IN CAPITAL FOR SALE (DEFICIT) TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JAN. 1, 1997 $ 11,151,666 $ 11,152 $ 35,635,084 ($ 1,568,443) $ 2,953,153 $ 37,030,946
CHANGE IN UNREALIZED
APPRECIATION ON INVESTMENTS,
AVAILABLE FOR SALE -- -- -- 1,568,443 -- 1,568,443
Issue of stock dividend 557,584 558 (558) -- -- --
Net income -- -- -- -- 10,433,741 10,433,741
BALANCE, Sept 30, 1997 $ 11,709,250 $ 11,710 $ 36,634,526 -- $ 13,386,894 $ 49,033,130
</TABLE>
See Notes to Condensed Consolidated Financial Statement
<PAGE>
EQUISURE, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
INCREASE (DECREASE) IN CASH OR CASH EQUIVALENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 10,433,741 $ 3,356,045
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH FLOWS
FROM OPERATING ACTIVITIES:
AMORTIZATION OF GOODWILL 16,173 --
GAINS ON SALE OF INVESTMENTS (45,000) (2,199,550)
FOREIGN CURRENCY EXCHANGE (GAIN) LOSS (221,000) 287,529
DEFERRED INCOME TAX 550,000 1,061,000
CHANGE IN: (4,100,689) (1,126,445)
PREMIUMS RECEIVABLE -- (3,437,500)
UNDERWRITING RESERVES 6,349,953 11,075,389
DUE FROM/DUE TO RELATED PARTIES 3,513,736 (3,731,650)
PREMIUMS PAYABLE -- (840,295)
ACCRUED INCOME TAXES -- (671,000)
OTHER 98,000 (210,163)
NET CASH FLOWS FROM OPERATING ACTIVITIES 16,594,914 4,913,360
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF INVESTMENTS 38,176,086 8,018,106
PURCHASE OF INVESTMENTS 556,000 (20,564,171)
ACQUISITION OF SUBSIDIARY -- --
NET CASH FLOWS FROM INVESTING ACTIVITIES 38,732,086 (12,546,065)
EFFECTS OF FOREIGN CURRENCY
EXCHANGE RATE CHANGES ON CASH (337,000) (287,529)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 54,990,000 (7,920,234)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,489,623 32,216,805
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 75,479,623 $ 24,296,571
</TABLE>
<PAGE>
EQUISURE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying condensed consolidated financial statements have been prepared
by the Company. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. In the opinion of the Company's
management, the disclosures made are adequate to make the information presented
not misleading, and the condensed consolidated financial statements contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the financial position as of September 30, 1997.
The results of operations for the three months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
The condensed consolidated financial statements are stated in United States
Dollars and are prepared in conformity with the accounting principles generally
accepted in the United States of America.
The preparation of the condensed consolidated financial statements in conformity
with the generally accepted accounting principles require management to make
estimates and assumptions that affect the reported assets and liabilities and
disclosure of contingent assets and liabilities at the date of the condensed
consolidated financial statements and the reported amounts of revenue and
expenses during the reported period. Actual results could differ from those
estimates.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company and it's wholly owned subsidiary, Equihot Herverzekering N.V., and
partly owned subsidiary Aviation Maritime Transportation (Insurance Brokers)
S.A.M. in which the Company had a 65% shareholding.
The financial statements of Aviation Maritime Transportation (Insurance Brokers)
S.A.M. are included in the total in the consolidatef financial statements of the
Company, less provisions for the minority interest is nil. Goodwill arising on
consolidation is amortized on a straight line basis over 15 years. All material
inter-company transactions have been eliminated.
<PAGE>
EQUISURE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENTS
There are no investments for sale held at September 30, 1997. Investments at
December 31, 1996 consist primarily of marketable equity securities available
for sale representing approximately 49% of total assets and a holding of
certificates of gold deporsit available for sale representing less than 45% of
total assets (see note 3.) They were carried at fair value based upon quoted
market prices. Unrealized appreciation (depreciation) is excluded from
operations and reported as a separate component of stockholders' equity realized
gains and losses are determined on the specific identification method.
CASH AND CASH EQUIVALENTS
For the purpose of presentation in the Company's condensed consolidated
statements of cash flows, cash equivalents are short term, highly liquid
investments that are both (1) readily converted into known amounts of cash and
(2) so near to maturity that they present insignificant risk of changes in value
due to changing interest rates.
PREMIUMS AND DETERMINATION OF UNDERWRITING RESULTS AND RESERVES
Premium income on short duration reinsurance contracts is accounted for using
the periodic method. Premiums that commence within the current underwriting year
are taken into revenue as earned retrocession and acquisition costs together
with claims incurred are match against premiums. Calculations are made to
determine the unearned premiums and deferred acquisition costs as necessary.
The Company reviews short duration contracts to establish whether premium
deficiencies exist. No account is taken of anticipated investment income in this
review.
Long duration reinsurance contracts are accounted for using the open-year
method. Premiums, retrocession and acquisition costs together with claims
incurred are allocated to underwriting year accounts according to the inception
of the contracts. The aggregation of the underwriting year accounts form the
basis of the underwriting reserves on the balance sheet. The loss reserves
relating to the open year method, will be disaggregated and reported on the
statement of operations as premiums, claims and expenses only when earned
premium becomes reasonably determinable. If at any time an underwriting year or
class of business within an underwriting year shows a deficiency, this loss will
be recognized immediately.
<PAGE>
EQUISURE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. REINSURANCE CEDED
In the normal course of business, the Company seeks to reduce the loss that may
arise from events that cause an unfavorable underwriting result by reinsuring
(ceding) certain levels of risk in various areas of exposure with other
reinsurance enterprises.
3. DEFERRED ACQUISITION COSTS
Commissions and other costs of acquiring insurance that vary with and are
primarily related to the production of new and renewal business are deferred and
amortized over the terms of the policies of reinsurance treaties to which they
relate.
4. LOSS RESERVES
The liability for losses and loss adjustment expenses includes amounts
determined from loss reports and individual cases and amounts, based upon past
experience, for losses incurred but not reported. Such liabilities are
necessarily based on estimates and while management believes that the amount is
adequate, the ultimate liability may be in excess of or less than the amounts
provided. The methods for making such estimates and from establishing the result
liabilities are continually reviewed, and any adjustments are reflected in
earnings currently.
5. INCOME TAXES
Income tax provisions are based on the asset and liability method. Deferred
income taxes have been provided for temporary differences between the tax bases
of assets and liabilities and their reported amounts in the condensed
consolidated financial statements. Such differences relate principally to the
unrealized appreciation (depreciation) on investments, available for sale and
differences in the recognition of premiums, losses and acquisition costs.
The Company is subject to corporate income taxes in Belgium. Effective May 10,
1996, the Company became subject to United States Federal income taxes.
Prior to May 10, 1996 there are no tax liabilities or deferred taxes because of
expenses for tax purposes in Belgium that are considered equity transactions for
financial reporting purposes in the United States.
EQUISURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INTANGIBLE ASSETS
Intangible assets consist of goodwill arising on consolidation in
respect of the acquisition of Aviation Maritime Transportation
(Insurance Brokers) S.A.M. This comprises the following:
Purchase price in excess of identifiable assets 365,257
Less Amortization (16,173)
---------
$ 349,084
3. INVESTMENTS, AVAILABLE FOR SALE
The aggregate fair value, gross unrealized holding gains, gross
unrealized holding losses and cost are as follows:
September 30, December 31,
1997 1996
Marketable equity securities
Cost -- $ 38,941,200
Gross unrealized holdings gains -- 615,012
Gross Unrealized holding losses -- (3,137,027)
------------
FAIR VALUE -- $ 36,419,185
Marketable certificates of gold deposit
Cost -- 3,461,028
Gross unrealized holding losses -- (136,428)
------------
FAIR VALUE -- 3,324,600
============
TOTAL FAIR VALUE -- $ 39,743,785
<PAGE>
Investments available for sale were liquidated during the three months to June
30, 1997. The funds generated contributed to the purchase off 884 Managed Units
at price $60,774.88 each. The units yield an annual return of 7.685%. The units
are readily realizable and are treated as cash and cash equivalents.
EQUISURE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. LOSS RESERVES
Loss reserves consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
Balance at January 1 $ 30,033,795 $ 18,227,498
Add-provision for losses incurred:
Current claim years 12,769,305 11,898,357
Prior claim years -- --
12,769,305 11,898,357
============ ============
Losses - paid losses:
Current claim years (508,697) (92,060)
Prior claim years (5,910,655) --
------------
(6,419,352) (92,060)
------------ ------------
Balance at September 30,1997 $ 36,383,748 $ 30,033,795
</TABLE>
Included in loss reserves in respect of transaction under the open year
method are the following: September 30, December 31, 1997 1996
<TABLE>
<S> <C> <C>
Written premiums assumed $ 81,118,991 $ 70,836,550
Ceded premiums (27,337,993) (35,531,807)
Acquisition costs (4,112,884) (6,937,510)
Paid losses (5,910,655) --
------------
$ 43,757,459 $ 28,367,233
============ ============
</TABLE>
5. INCOME TAXES
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
Current
Foreign $ 2,606,013 $ 200,000
Federal, net of foreign tax credit -- --
$ 2,606,013 $ 200,000
Deferred
Federal 506,000 2,108,000
State 44,000 192,000
550,000 2,300,000
------------ ------------
$ 3,156,013 $ 2,500,000
============ ============
</TABLE>
6. RELATED PARTY TRANSACTIONS
Transactions or balances with related parties included in the condensed
consolidated financial statements are as follows.
Statement of Operations
Earned premiums assumed and ceded include transactions with Equihot Verzekering
N.V. Net acquisition costs include transactions with Equihot Verzekering N.V.
and Equihot Delfstoffen N.V.
Balance Sheets
All amounts due from and due to related parties represent non-interest bearing
obligations, receivable from or payable to either Equihot Delfstoffen N.V. or
one of it's wholly-owned subsidiaries, and are due within one year.
7. FAIR VALUES OF FINANCIAL INSTRUMENTS
Cash and cash equivalents are carried at their face amount.
<PAGE>
Investments, available for sale are carried at fair value as determined based on
quoted market prices.
8. CONTINGENCIES
Loss reserves are provisions for the future losses based on individual
underwriting years. To the extent that an open year becomes fully developed and
earned premiums can be ascertained, credit can be taken into the income
statement comprising the loss provision no longer taken.
Belgium fiscal authorities have examined the records for the year ended December
31, 1996, they contested the basis on which the company has complied it's
underwriting reserves. Directors believe that the authorities have misunderstood
the nature and time frame of the risks provided against. A formal rejection of
the authorities' assertions was drawn up and submitted. At September 30, 1997,
the authorities had not initiated any further correspondence.
Any change in the revenue recognition policy for tax purposes would result in
gross temporary timing differences, the proposed adjustments would be
substantially offset by deferred income taxes and would not be material to the
condensed consolidated financial statements taken as a whole.
EQUISURE, INC AND SUBSIDIARIES
FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following information should be read in conjunction with the unaudited
condensed financial statements included herein, see item 1.
PREFACE STATEMENT
The Board would like to preface this overview of operations with a brief
statement of intent. This statement should be read in the context that it is for
the express purpose of proving information to the investors of the Company and
is designed to assist in the understanding of action taken by the board and to
avoid the continued speculation in the media over the activities of the Company.
The Board feels that this continued speculation has been totally unfounded and
is the result of deliberate action taken by certain individuals and corporations
in an effort to de-stabilize the Company and the confidence of it's investors.
A full and definitive report will be prepared and published by the Board for the
4th quarter and end of year report but, as announced in the media by the
Chairman over the past months, it has been decided as the result of several
external factors, that action should be taken to ensure that continued long term
profitability of the Company and thereby protect investor confidence. Therefore,
it was decided by the Board to relinquish any direct insurance involvement
through subsidiaries and restructure the company's interest to that of a
"Holding Company" making strategic investments in, initially, insurance
operations and then latterly in other broader based investment opportunities.
The Board recognized that this change of investment strategy may result in short
term loss of profitability inherent in any change of investment strategy but, is
confident that in the medium term it will allow the company to capitalize on new
opportunities as they present themselves.
The Board would wish all investors to be fully cognizant of this change in
strategy and recognize the necessity of a transition period to effect such
change. However, the Board is confident that it is for the benefit of all
concerned, not least it's investors, that such a change is made and that it will
afford the opportunity to demonstrate a dynamic new approach to investment
opportunities and also maximize the benefits of releasing the Company from
potential long term liabilities. Such potential liabilities would, in the
opinion of the Board, hamper the development of the Company and delay the
release of imbedded value for the benefit of investors. Therefore, the following
notes should be read in this context and in full light of the changes that have
implemented and which will be fully reported on in the end of year statement and
are not necessarily and indication of activity for the 4th quarter and it's
resultant income stream.
<PAGE>
OVERVIEW
Equisure, Inc. had a wholly owned subsidiary, Equihot Herverzekering N.V. a
Belgian reinsurer, incorporated in Belgium and operating principally from
Antwerp, the main commercial Flemish City of Belgium. The word "Herverzkering"
is Dutch-Flemish for reinsurance.
Equisure, Inc. had a 65% investment in a subsidiary, Aviation Maritime
Transportation (Insurance Brokers) S.A.M., an insurance and reinsurance broker.
Equisure utilized the reinsurance brokering services of AMT which replaced the
Company's previous outsource underwriting administrations services.
Equihot Herverzekering N.V. had been underwriting reinsurance since January 1,
1994 and specialized in financial risk and political risk reinsurance, as well
as underwriting a general reinsurance account.
The Company limited its business to the following classes of risk:
Political, Financial, Marine, Aviation, Accident & Health and Casualty.
Political and financial risks were primarily located in African countries with
new accounts in the financial sector emanating from North America and Europe.
Other classes of business were located in North America, South America and
Europe.
The majority of financial risk business was obtained from African historic
sources and is renewable. The Company believes that there is potential for
growth in this sector from new sources and new accounts have been written,
emanating from Europe and North America.
Equihot Verzekering N.V. (EV), an insurance company, fronted for the insurance
which the Company provided with respect to political and financial risk
business. Since a reinsurer does not directly insure the underlying risk, a
reinsurer must enter into fronting arrangements with other insurance companies.
Fronting arrangements are defined as reinsurance in which the ceding (reinsured)
insurance company issues a policy and reinsures all or substantially all of the
insurance risk with the reinsurer. EV provides this fronting service for a fee
of 5% on such premiums.
Related party transactions with the former parent, Equihot Delfstoffen N.V. were
commission payments on business introduced. This agreement is in keeping with
market levels of 10% and will continue until December 31, 2005, but note must be
taken of the portfolio transfer of the former parents' business which may, or
may not affect such arrangements.
The majority of other general business written for the third quarter of 1997 was
aviation and casualty. This business together with that of marine and accident &
health is located in North America, South America and Europe.
However, the Board of Directors, Whilst advising that the Company continued to
focus its portfolio of mixed commercial reinsurance business in specific areas
that fall within the Company's established criteria of risk management, would
announce that changes discussed above will have an effect of future activities
that will be fully reported upon in the 4th quarter and annual report.
Whilst not coming into affect within the 3rd quarter report, the Board feels in
keeping with the policy of open disclosure to investors that, it should advise
on significant events that will, in its opinion, impact upon the 4th quarter
figures and full end of year report. Therefore, as previously advised in media
announcements, on September 8, 1997, the Company had entered into an agreement
whereby, on October 1, 1997, the entire portfolio of Equihot Herverzekering N.V.
This action was taken in order to protect the investors of Equisure, Inc. from
the potential losses that had been reported as a result of the activities of the
former parent Equihot Delfstoffen N.V. which, as reported elsewhere in this
statement, had an agreement to maintain the production of insurance business
with Equihot Heverzekering N.V. until 2005.
Information became available that indicated that there was a possible claim call
on Equihot Herverzekering N.V. which, if materialized, would far exceed the
reserves of that company and, as a result, place it in severe financial
jeopardy. Whilst his situation was effectively a matter of management of Equihot
Herverzekering N.V. to resolve, Equisure, Inc., as the parent company, could not
remain isolated from the situation and therefore it was decided to "ring-fence"
any potential cross contamination of insufficient assets
<PAGE>
whereby Equisure, Inc., would be morally, if not contractually, obligated to
support its subsidiary company in the event of financial insufficiency.
The first step of this protective measure was the portfolio transfer of all the
reinsurance activities of Equihot Herverzekering N.V. to Polfin Insurance
Company Inc., which contain a proviso that should the matter be resolved and any
profit realized, then 95% of such profit would be returned to Equisure, Inc.
Therefore, it can be demonstrated that such action was prudent to the protection
of the investors and in their best interests. This action was taken by the Board
in full knowledge of the fact that they may come under criticism by certain
investors who may feel that assets of the Company were being transferred to
their detriment, however, the Board would strongly refute this for the reasons
given above.
Additionally, the Board can report that whilst the matter has not yet been
finalized, it now appears likely that a "commutation" of the claims call has
been achieved by Polfin Insurance Company Inc., whereby the liability resultant
of the book of business from the former parent company has been dramatically
reduced to a level whereby the final outcome will likely result in a profit
situation for Equisure Inc., "Commutations: is a reinsurance industry mechanism
used for claims management and provides protection to the reinsurer as well as
the ceding company. This enables the reinsurer to be released from obligations
to indemnify in exchange for the reinsurer paying to its cedant an agreed sum to
cover all present and future claims amounts and thereby releasing the resinsurer
from the uncertainty of claims development into an unspecified period if time.
Effectively this allows the reinsurer to quantify and crystallise its claims
exposure as soon a possible and consolidate into its financial statement.
Also during the 3rd quarter the Board agreed to the disposal of its holding in
Aviation Maritime Transportation ( Insurance Brokers ) S.A.M. as the need for an
internal insurance broker and administrative provider had become redundant with
the change in investment strategy. Allied to this and the transfer of the
reinsurance business to Polfin Insurance Company Inc., the Board agreed to sell
its holdings to a group of private individuals which included members of the
then existing management team. This enables continuity of administration to be
maintained on the book of business and an equitable transfer of personnel with
attendant release of potential staff liabilities and effect a seamless transfer
of business with the minimum disruption. The price for the disposal had not been
finalized during the 3rd quarter but will be fully reported on in the 4th
quarter.
The final item that the Board wishes to report on in this quarter report was,
that as a result of the disposal of the direct involvement of the insurance
activities of Equihot Herverzekering N.V. it has been agreed the remaining
"shell" of Equihot Herverzekering N.V. will be sold to Combrea Inc., a
Panamanian domiciled company, for a nominal consideration of US$1.00 in exchange
for Combrea Inc., assuming any tax liabilities of Equihot Herverzekering N.V. As
a result this will release Equisure Inc., from certain tax liabilities reported
in the condensed consolidated financial statements herein and will be fully
reflected in the 4th quarter report. Again this action reinforces the Board's
assertions that it has acted with due regard to investor confidence and to
protect the interests of those investors to ensure the long term financial
security of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The capacity of a reinsurance company to write business is based upon
maintaining liquidity and capital resource sufficient to pay claims and expenses
as they become due. The company has historically generated adequate capital
resources to support its current operations and believes it will continue to do
so for the foreseeable future. The primary sources of the company's liquidity
are funds generated from reinsurance premiums and investment income. The
principle application of such funds are payment of losses and loss adjustment
expenses, acquisition of investments and operating expenses.
Cash flows from investing activities reflect the company's decision to liquidate
it's investments held for sale in favor of holding cash equivalents.
Results of Operations
Three months ended September 30, 1997 compared to three months ended September
30, 1996.
Total revenues of $8,948,099 increased $6,070,913 or 211% for the three months
ended September 30, 1997 as compared to the total revenues of $2,877,186 for the
same period in 1996.
<PAGE>
Earned premiums assumed on the completion of short-term reinsurance contracts
for the three months ended September 30, 1997 of $8,224,119 showed a 271%
increase on the comparative quarters figure of $2,216,224 is reflective of the
maturity of the short-term reinsurance contracts.
Ceded premiums in the 3rd quarter of 1997 of $17,998 compared to nil in the
comparative quarter in 1996 is due to retrocession protection now being sought
as a matter of company policy.
No realized gains on the disposal of quoted investments were made in the current
quarter. The comparative period in 1996 produced $3,221,217.
Net investment income, comprising dividend and interest income, showed a
decrease to $424,615 for the three months ended September 30, 1997.
Brokerage income of $317,363 for the three months ended September 30, 1997
emanates from the activities of Aviation Maritime Transportation (Insurance
Brokers) S.A.M.
Losses incurred comprising claims paid, outstanding claims and estimates of
future liabilities of $509,465 are provided for the three months ended September
30, 1997.
Net acquisition costs of $325,887 for the three months ended September 30, 1997
were up by 48% compared for the corresponding period in 1996
Administrative expense for the current quarter are down 11% compared with
$751,703 for the three months ended September 30, 1996. This change is
attributable to the change in both the amount of business assumed and the
portfolio of the mix of business assumed in general reinsurance areas.
Additionally, the cost of increased regulatory compliance is reflected in this
change.
Foreign currency gains and losses occur due to the fluctuations in the rate of
exchange between the US dollar and the major currencies, where transactions
occur and where balances are held in those currencies.
Amortization of goodwill of $3,997 for the three months ended September 30,
1997, is in respect of the acquisition of Aviation Maritime Transportation
(Insurance Brokers) S.A.M. This asset has been reported as being disposed of
during the 4th quarter for an not as yet finalized sum.
Income taxes of $2,452,718 are maintained in respect of the results for the
three months ended September 30, 1997, this compares with the figure of $683,000
for the same period in the prior year. However, due to the changes outlined
above it is anticipated this tax liability will be significantly altered in the
4th quarter and will be fully reported in the annual report.
Result of Operations
Nine months ended September 30, 1997 compared to nine months ended September 30,
1996.
Total Revenues of $22,518,469 increased $14,391,950 of 175% for the nine months
period ended September 30, 1997 as compared to the total revenues of $8,126,519
for the same nine month period in 1996.
Earned premiums assumed on the completion of short-term reinsurance contracts
for the nine months period ended September 30, 1997 of $22,514,662 showed a 400%
increase on the comparative nine months figure of $4,495,204 as is reflective of
the maturity of the short-term reinsurance contracts.
Ceded premiums in the nine months period ended September 30, 1997 of $2,359,422
compared to the nil in the comparative period in 1996 is due to retrocession
protection now being sought as a matter of company policy.
No realized gains on the disposal of quoted investments were made in the nine
months ended September 30, 1997. The comparative period in 1996 produced a
similar nil result.
Net investment income comprising of dividend and interest income showed a
decrease to $1,873,437 for the nine months ended September 30, 1997.
Brokerage income of $489,792 the nine months ended September 30, 1997 emanates
from the activities of Aviation Maritime Transportation (Insurance Brokers) SAM.
Losses incurred compromising claims paid, outstanding claims and estimates of
future liabilities of $2,520,217 are provided for the nine months ended
September 30, 1997.
<PAGE>
Net acquisition costs of $2,129,477 for the nine months ended September 30, 1997
were up 374% compared for the corresponding period in 1996. This was reflective
to the change in activities during the period, resultant with a reduced level of
commercial business during the period.
Administrative expenses for the current quarter are up 28% at $2,802,017
compared with $2,193,425 for the nine months ended September 30, 1996. This
change is attributable to the change in both the amount of business assumed and
the portfolio mix of business assumed in the general reinsurance areas.
Additionally, the cost of increased regulatory compliance is reflected in these
changes.
Foreign currency exchange gains and losses occur due to the fluctuations in the
rate of exchange between the US Dollar and the major currencies, where
transactions occur and balances are held in these currencies.
Amortization of goodwill arising on consolidation of $16,173 for the nine months
ended September 30, 1997 is in respect of the acquisition made during the
preceding quarter of Aviation Maritime Transportation (Insurance Brokers) S.A.M.
But for the purpose of this report has been maintained at the existing level due
to the reported disposal of this assert during the 4th quarter for an as yet
unfinalized sum.
Income taxes of $5,602,718 are maintained in respect of results for the nine
months to September 30, 1997 this compares with the figure of $1,732,000 for the
same period in the prior year. However, due to the change outlined above it is
anticipated this tax liability will be significantly altered in the 4th quarter
and will be fully reported in the annual report.
ITEM 1. LEGAL PROCEEDINGS
The Board wish to report and comment of the following actions.
During the three months to September 30,1997 the Company settled a legal action
instigated against Equisure, Inc. This action was instigated by RISC, Inc a
Texas based reinsurance intermediary for alleged impropriety in relation to a
proposed investment by Equisure Inc in RISC Inc. RISC Inc. had concluded an
agreement with Equihot Herverzekering N.V. to represent them in Central and
South American markets.
RISC had formally represented the Travelers Group but, undisclosed to Equihot
Herverzekering N.V., at the time this agreement has been terminated by Travelers
for alleged mismanagement of funds due to Travelers from RISC Inc.
Also, the Directors and Officers of RISC Inc., who were also the shareholders,
had found the level of business production totally inadequate to meet the
running costs of their business. As a result the were within weeks of certain
bankruptcy as their bankers had refused to advance further funding and did not
consider the proprietors to posses sufficient assets on personal basis to
guarantee only further extensions of credit facilities.
Equisure Inc., was initially approached to effect a "loan" of reinsurance
premiums then held by RISC inc., as short term funding to allow them to seek
re-financing. This was agreed and then discussions were opened by RISC and
Equisure Inc., to review a possible acquisition of RISC by Equisure. These
discussions resulted in a breakdown of relationship and the then CEO of
Equisure, Mr. Peter Clarke, made an out of court settlement without Board
approval.
Mr. Clarke is now the subject of a legal action against him which may form the
basis of a criminal complaint against him. At this time is it not possible to
report further in this action until certain aspects have been clarified. A
fuller report will be made in the 4th quarter report in investors.
Also during this period and Equisure Inc., shareholders brought an action for
libel in the United Kingdom Courts against Mr. Trevor Jones for defamatory
comments and articles written by him in various media publications. These
articles formed the basis of a campaign of vicious attacks both personal and
corporately on the Company and its Directors. The articles were written without
any substantiating evidence and were the product of a malicious and totally
unwarranted attack by Jones.
ITEM 2. CHANGES IN SECURITY.
None
<PAGE>
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. EXHIBITS AND REPORTS.
During the quarter ended September 30, 1997 the Company was not required to file
any reports on Form 8-K.
ITEM 6. OTHER INFORMATION.
None
EQUISURE INC., AND SUBSIDIARIES
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorised.
Date:
April 8, 1998 /s/ Peter E. Uttley
- --------------------------------------------------------------------------------
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