SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K/A-1
________________________________
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
July 9, 1996
________________________________
THE COMPANY DOCTOR
(Exact name of registrant as specified in its charter)
Delaware 1-14150 72-1234136
(State of Incorporation)(Commission File No.) (I.R.S. Employer
Identification No.)
Suite 1800
5215 North O'Connor
Irving, Texas 75039
(Address of principal executive offices)
(214) 401-8300
(Registrant's telephone number, including area code)
ITEM 7. Financial Statements and Exhibits
(a) In accordance with Item 7(a)(1), the Registrant is filing the required
financial statements of the Subsidiary as an amendment to the Form 8-K.
(b) It was impracticable to provide the pro forma financial information
relative to the Subsidiary at the time of filing the Form 8-K. In
accordance with Item 7(b)(2), the Registrant hereby files the required
financial statements as an amendment to the Form 8-K.
(c) The following exhibits are furnished herewith in accordance with the
provisions of Item 601 of Regulation S-K:
Reg. S-K
Exhibit No. Description Item No.
* 2.2 Stock purchase agreement 2
- -99.1 Financial statements of subsidiary 99
- -99.2 Pro forma financial statements 99
* Previously filed.
- - Filed herewith.
SIGNATURES
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.
THE COMPANY DOCTOR
Date: September 12, 1996 By: /s/ Fred G. Parrish
Fred G. Parrish, Chief Operating Officer
EXHIBIT INDEX
Exhibit No. Exhibit Description Page
*2.2 Stock Purchase Agreement N/A
- -99.1 Financial Statements of Subsidiary F-1 to F-11
- -99.2 Pro Forma Financial Statements F-1 to F-9
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
AND
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
Attached are the historical audited financial statements of
Montfort Insurance Company for the acquisition of Montfort Insurance Company by
The Company Doctor. The following unaudited pro forma combined
financial statements reflect three acquisitions by the Company
Doctor in its current reporting period. The unaudited pro forma
combined financial statements should be read in conjunction with the
attached historical financial statements of Montfort Insurance Company and
the historical financial statements of Occupational and Family Medicine
included in the Company's Form 8-K/A filed September 12, 1996.
The following unaudited pro forma combined statement of operations
for the year ended June 30, 1996 and the unaudited pro forma combined
balance sheet as of June 30, 1996 give effect to the business
combination of The Company Doctor and Subsidiaries and Montfort
Insurance Company (effective June 30, 1996), Occupational and Family
Medicine (effective May 9, 1996), and Doyle M. Sharp, M.D., P.A.
(effective February 6, 1996) (the "Acquired Companies"), including the
related pro forma adjustments described in the notes thereto. The
transaction between The Company Doctor and Subsidiaries and the
Acquired Companies has been accounted for as a combination of
companies under the purchase method. The unaudited pro forma
statement of operations include the business combination of The
Company Doctor and Subsidiaries and the Acquired Companies and have
been prepared as if the transactions occurred on July 1, 1995. The
unaudited pro forma balance sheet has been prepared as if the
proposed transactions occurred June 30, 1996. These pro forma
statements are not necessarily indicative of the results of
operations or the financial positions as they may be in the future or
as they might have been had the transactions become effective on the
above mentioned date.
The unaudited pro forma adjustments for the Company's acquisition of
Montfort Insurance Company result in recording net goodwill of $42,918,
eliminating an accrued capital contribution of $1,500,000, recording the
cash purchase price of $687,010 and the elimination of equity of the
predecessor company of $2,547,244.
The pro forma combined statement of operations for the year ended
June 30, 1996 includes the results of operations of The Company
Doctor and Subsidiaries for the year ended June 30, 1996 and
Occupational and Family Medicine, Montfort Insurance Company, and Doyle
M. Sharp, M.D., P.A. for the year ended December 31, 1995.
Unaudited Pro Forma Combined Balance Sheet
June 30, 1996
<TABLE>
<CAPTION>
The
Company Doyle M. Occupational Montfort
Doctor and Sharp, and Family Insurance Combined
Subsidiaries M.D., P.A. Medicine Company Total
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash
equivalents $4,452,009 $ 45,368 $ 38,998 $1,100,058 $5,636,433
Restricted cash 500,000 - - - 500,000
Short-term
investments 251,016 - - 999,341 1,250,357
Accounts
receivable
Trade, less
allowance
for doubtful
accounts of
$105,000 703,223 52,184 341,901 - 1,097,308
Related parties113,117 - - 1,500,000 1,613,117
Other 66,429 - - 18,919 85,348
Prepaid expenses 93,398 1,238 3,131 - 97,767
Total current
assets 6,179,192 98,790 384,030 3,618,318 10,280,330
Property and
equipment 1,426,839 2,002 108,057 - 1,536,898
Less accumulated
depreciation and
amortization (591,982) (355) (67,057) - (659,394)
834,857 1,647 41,000 - 877,504
Other assets
Intangibles,
net 1,500,000 - - - 1,500,000
Other assets 237,983 1,260 - 324,163 563,406
Investments 1,630,453 - - - 1,630,453
Total other
assets 3,368,436 1,260 - 324,163 3,693,859
Total assets $10,382,485 $101,697 $425,030 $3,942,481 $14,851,693
* Excluding the acquisitions effective before June 30, 1996.
Continued on the following page.
</TABLE>
<TABLE>
<CAPTION> Pro forma
Combined Pro forma Combined
Total Adjustments Total
<S> <C> <C> <C>
Current assets
Cash and cash
equivalents $5,636,433 $(987,010) (C) $4,649,423
Restricted cash 500,000 500,000
Short-term investments 1,250,357 1,250,357
Accounts receivable
Trade, less allowance
for doubtful accounts
of $105,000 1,097,308 1,097,308
Related parties 1,613,117 (1,500,000) (B) 113,117
Other 85,348 85,348
Prepaid expenses 97,767 97,767
Total current assets 10,280,330 7,793,320
Property and equipment 1,536,898 1,536,898
Less accumulated depreciation
and amortization (659,394) (659,394)
877,504 877,504
Other assets
Intangibles, net 1,500,000 (1,500,000) (A) 1,688,314
1,700,014 (C)
(11,700) (D)
Other assets 563,406 563,406
Investments 1,630,453 1,630,453
Total other assets 3,693,859 3,882,173
Total assets 14,851,693 (2,298,696) 12,552,997
Continued on the following page.
Unaudited Pro Forma Combined Balance Sheet
June 30, 1996
</TABLE>
<TABLE>
<CAPTION>
Continued from previous page.
The Occupational
Company Doyle M. and Montfort
Doctor and Sharp, Family Insurance Combined
Subsidiaries* M.D.,P.A. Medicine Company Total
<S> <C> <C> <C> <C> <C>
Liabilities and
Stockholders' Equity
Current liabilities
Notes payable $ 521,357 - - - $521,357
Current maturities of
capital lease
obligations 52,501 - - - 52,501
Accounts payable and
accrued expenses 255,489 20,732 49,492 12,364 338,077
Claims payable - - - 1,743,107 1,743,107
Due to related
party 1,500,000 - - - 1,500,000
Total current
liabilities 2,329,347 20,732 49,492 1,755,471 4,155,042
Capital lease
obligations, net of
current maturities 79,644 - - - 79,644
Total
liabilities 2,408,991 20,732 49,492 1,755,471 4,234,686
Stockholders' equity
Preferred stock - - - - -
Common stock 45,564 1,000 - 370,000 416,564
Additional paid-in
capital 9,284,356 - 31,608 5,432,323 14,748,287
(Accumulated deficit)
retained
earnings (1,356,426) 79,965 343,930 (3,615,313)(4,547,844)
Total stockholders'
equity 7,973,494 80,965 375,538 2,187,010 10,617,007
Total $ 10,382,485 $101,697 $425,030 $3,942,481 $14,851,693
</TABLE>
* Excluding the acquisitions effective before June 30, 1996.
Continued on following page.
<TABLE>
<CAPTION>
Pro forma
Combined Pro Forma Combined
Total Adjustments Total
<S> <C> <C> <C>
Liabilities and
Stockholders' equity
Current liabilities
Notes payable $521,357 (750,000) (C) 1,271,357
Current maturities of
capital lease obligations 52,501 52,501
Accounts payable and
accrued expenses 338,077 338,077
Claims payable 1,743,107 1,743,107
Due to related party 1,500,000 1,500,000 (B) -
Total current liabilities 4,155,042 3,405,042
Capital lease obligations,
net of current maturities 79,644 79,644
Total liabilities 4,234,686 3,484,686
Stockholders' equity
Preferred stock - -
Common stock 416,564 371,000 (A) 46,765
(1,201) (C)
Additional paid-in capital 14,748,287 5,463,931 (A) 10,255,346
(970,990) (C)
(Accumulated deficit)
retained earnings (4,547,844) (3,191,418) (A) (1,233,800)
(122,626) (E)
Total stockholders'
equity 10,617,007 9,068,311
Total 14,851,693 2,298,696 12,552,997
Unaudited Pro Forma Combined Statement of Operations
June 30, 1996
</TABLE>
<TABLE>
<CAPTION>
The Company Doyle M. Occupational Montfort
Doctor and Sharp and Family Insurance Combined
Subsidiaries M.D.,P.A. Medicine Company Total
<S> <C> <C> <C> <C> <C>
Revenues $4,193,906 $ 319,977 $ 1,212,880 $ - $5,726,763
Cost of
services
provided 1,328,229 - 231,094 - 1,559,323
General and
administrative
expenses 2,641,692 317,726 555,686 168,103 3,683,207
Marketing
expenses 94,964 - 2,955 - 97,919
Development
and
acquisition
costs 202,468 - - - 202,468
4,267,353 317,726 789,735 168,103 5,542,917
(Loss) income
from
operations (73,447) 2,251 423,145 (168,103) 183,846
Other income
(expense)
Interest
income 139,082 - - 162,314 301,396
Interest
expense (82,665) - - - (82,665)
56,417 - - 162,314 218,731
Net (loss)
income before
income tax
benefit (17,030) 2,251 423,145 (5,789) 402,577
Income tax
(expense)
benefit 100,000 (1,000) - - 99,000
Net income
(loss) $ 82,970 $ 1,251 $ 423,145 $ (5,789) $ 501,577
(loss)
Net income
per share
Weighted
average
shares
outstanding
Continued on following page.
Pro forma
Combined Pro forma Combined
Total Adjustments Total
Revenues $5,726,763 $5,726,763
Cost of services provided 1,559,323 39,361 (F) 1,598,684
General and administrative
expenses 3,683,207 70,750 (G) 3,753,957
Marketing expenses 97,919 97,919
Development and
acquisition costs 202,468 202,468
5,542,917 5,653,028
(Loss) income from operations 183,846 73,735
Other income (expense)
Interest income 301,396 (18,000) (H) 283,396
Interest expense (82,665) (82,665)
218,731 200,731
Net (loss) income before
income tax benefit 402,577 274,466
Income tax (expense)
benefit 99,000 (192,000) (I) (93,000)
Net income (loss) 501,577 (320,111) 181,466
Net income per share .04
Weighted average shares
outstanding 4,148,970
Notes to Unaudited Pro Forma Combined Financial Statements
In February and May of 1996, the Company entered into agreements to
purchase Doyle M. Sharp, M.D. P.A. (Sharp) in Lancaster and
Occupational and Family Medicine (OFM) in Baytown, respectively.
Additionally, in June 1996, the Company acquired Montfort Insurance
Company (Montfort).
The acquisitions will be accounted for under the purchase method of
accounting applying the provisions of Accounting Principles Board
Opinion No. 16 ("APB 16"). Pursuant to the requirements of APB 16,
the aggregate purchase price, based on fair values, will be allocated
to the tangible and intangible assets and liabilities assumed based
on their estimated fair value at the date of the consummation of the
acquisitions. The estimated aggregate purchase price to be allocated
to the assets acquired and liabilities assumed on the acquisitions
are as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Cash paid (including acquisition costs) for assets
acquired and liabilities assumed $1,093,000
Notes payable issued 750,000
Common stock 972,000
Total $2,815,000
</TABLE>
The allocation of the purchase price for purposes of the pro forma
financial information has been estimated as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets $2,562,000
Property and equipment 376,000
Identifiable intangibles 3,000
Liabilities assumed (1,826,000)
Total $1,115,000
</TABLE>
The preliminary excess purchase price over net assets acquired of
$1,700,000 has been allocated to goodwill.
(A) To eliminate the equity of the acquired companies and the
investment in Montfort.
(B) To eliminate accrued capital contribution from TCD to Montfort.
(C) To record (i) the issuance of 119,339 shares of common stock
(ii), the cash purchase price of $987,010, (iii) the notes
payable issued totaling $750,000 and (iv) the excess of
purchase price over net assets.
(D) To record amortization of goodwill in OFM from May 8, 1996
effective date to June 30, 1996.
(E) To record income from effective date of acquisition to June 30,
1996 for Sharp, OFM, and Montfort.
(F) To adjust for additional compensation for the doctors.
(G) To record amortization of the excess purchase price of
$1,410,000 (OFM) over the estimated useful life of twenty years.
(H) To eliminate interest income at approximately 6% on cash paid
per the terms of the acquisition.
(I) To record income taxes at 34% of pro forma net income.
Table of Contents
Independent Auditors' Report F-2
Financial Statements
Balance Sheets F-3
Statements of Operations F-4
Statement of Stockholder's Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Montfort Insurance Company
Dallas, Texas
We have audited the balance sheets of Montfort Insurance Company as
of December 31, 1995 and June 30, 1996 and the related statements of
operations, stockholder's equity, and cash flows for the years ended
December 31, 1995 and 1994 and the six months ended June 30, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Montfort
Insurance Company as of December 31, 1995 and June 30, 1996, and the
results of its operations and its cash flows for the years ended
December 31, 1995 and 1994 and the six months ended June 30, 1996 in
conformity with generally accepted accounting principles.
/s/Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
August 19, 1996
Denver, Colorado
Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
Assets
<S> <C> <C>
Current assets
Cash $ 2,382,409 $ 1,100,058
Short-term investments 50,000 999,341
Interest receivable 8,770 18,919
Due from related party (Note 2) - 1,500,000
Total current assets 2,441,179 3,618,318
Other asset (Notes 2 and 6)
Intangible, net 112,063 -
Guaranty fund assessments 324,163 324,163
Total assets $ 2,877,405 $ 3,942,481
Liabilities and Stockholder's Equity
Current liabilities
Accrued expenses $ 20,723 $ 12,364
Total current liabilities 20,723 12,364
Long-term liabilities
Future policy benefits and losses,
claims and settlement expense (Notes 2 1,697,457 1,743,117
and 3)
Total liabilities 1,718,180 1,755,481
Commitments and contingencies (Note 4)
Stockholder's equity (Note 2)
Common stock; $1.00 par value; 400,000
shares authorized; 370,000 shares issued 370,000 370,000
and outstanding
Additional paid-in capital 3,932,323 5,432,323
Accumulated deficit (3,143,098) (3,615,323)
Total stockholder's equity 1,159,225 2,187,000
Total liabilities and stockholder's $ 2,877,405 $ 3,942,481
equity
Statements of Income
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended For the Six Months Ended
December 31, June 30,
1994 1995 1995 1996
(Unaudited)
<S> <C> <C> <C> <C>
Revenues
Investment income, net $ 153,676 $ 162,314 $ 76,202 $ 58,939
Benefits, losses and
expenses
Losses and settlement
expenses (Notes 2 and 3) 581,419 26,084 - 360,234
Professional fees 82,210 77,075 41,075 45,132
Administrative fees 59,801 38,870 23,942 10,204
Other expense 22,940 29,807 17,718 115,594
746,370 171,836 82,735 531,164
Net loss $ (592,694) $ (9,522) $ (6,533) $(472,225)
Net loss per common
share $ (1.60) $ (.02) $ (.02) $ (1.28)
Weighted average common
shares outstanding 370,000 370,000 370,000 370,000
Statement of Stockholder's Equity
</TABLE>
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Accumulated Stockholers'
Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance, December 370,000 $370,000 $3,932,323 $(2,540,882) $1,761,441
31, 1993
Net loss - - - (592,694) (592,694)
Balance, December 370,000 370,000 3,932,323 (3,133,576) 1,168,747
31, 1994
Net loss - - - (9,522) (9,522)
Balance, December 370,000 370,000 3,932,323 (3,143,098) 1,159,225
31, 1995
Net loss - - - (472,225) (472,225)
Capital - - 1,500,000 - 1,500,000
contribution (Note
2)
Balance, June 30, 370,000 $370,000 $5,432,323 $(3,615,323) $2,187,000
1996
Statements of Cash Flows
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended For the Six Months Ended
December 31, June 30,
1994 1995 1995 1996
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities
Net loss $(592,694) $(9,522) $ (6,533) $ (472,225)
Adjustments to reconcile
net loss to net cash used
in operating activities
Amortization or write-
off of intangibles 3,733 3,733 1,867 112,063
Change in assets and
liabilities -
Prepaid insurance - 936 - -
premium tax
Interest receivable 15,456 19,100 (8,511) (10,149)
Accrued expenses 125 1,608 (125) (8,359)
Future policy benefits
and losses, claims
and settlement
expense (643,946) (905,556) (507,783) 45,660
Checks written in
excess of bank
balance 14,995 (14,995) (842) -
(609,637) (895,174) (515,394) 139,215
Net cash used in
operating
activities (1,202,331) (904,696) (521,927) (333,010)
Cash flows from investing
activities
Net proceeds from
(purchases of)
investments 1,123,428 3,287,105 521,927 (949,341)
Net cash (used in)
provided by
investing
activities 1,123,428 3,287,105 521,927 (949,341)
Cash (decrease) increase (78,903) 2,382,409 - (1,282,351)
Cash - beginning of period 78,903 - - 2,382,409
Cash - end of period $ - $2,382,409 $ - $ 1,100,058
Supplemental disclosure of noncash financing activities
At June 30, 1996, the Company accrued a capital contribution of
$1,500,000 from its sole stockholder.
Note 1 - Summary of Significant Accounting Policies
Nature of Business and Organization
Montfort underwrote a workers' compensation insurance policy for its
sole stockholder and its affiliates from July 1, 1987 to January 1,
1992 when the company became inactive. Currently, the only
operations of Montfort are the payment on approximately 65
outstanding claims filed prior to December 31, 1991. The Company
anticipates underwriting new policies beginning in the fall of 1996.
Interim Financial Statements (Unaudited)
In the opinion of the Montfort Insurance Company, the accompanying
unaudited financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
results of its operations and changes in cash flows for the six
months ended June 30, 1995. The results of operations for the six
months ended June 30, 1995 are not necessarily indicative of the
results to be expected for a full year.
Cash and Cash Equivalents
The Company considers all cash on hand and in banks, certificates of
deposit and other highly-liquid investments with maturities of three
months or less, when purchased, to be cash and cash equivalents for
cash flow purposes.
Cash overdraft positions may occur from time to time due to the
timing of depositing cash receipts and releasing disbursements in
accordance with the Company's cash management policies.
Investments
The Company invests in long-term and short-term certificates of
deposit, and U.S. Treasury notes which are classified as held-to-
maturity or available-for-sale. The investments are held with
financial institutions. The Company performs periodic reviews of its
investments and the financial institutions in order to limit credit
risk.
Investments which are held-to-maturity are recorded at amortized cost
while available-for-sale investments are recorded at fair value.
During the years ended December 31, 1994 and 1995, and the six months
ended June 30, 1995 and 1996, there was no material unrealized gains
or losses on available-for-sale investments.
Note 1 - Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, claims payable and accrued expenses approximated fair
value as of December 31, 1995 and June 30, 1996 because of the
relatively short maturity of these instruments.
The fair value of held-to-maturity investments approximated fair
value at December 31, 1995 and June 30, 1996. As noted above,
available-for-sale investments are recorded at fair value.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
The Company has recorded approximately $1,700,000 and $1,750,000 of
claims payable at December 31, 1995 and June 30, 1996, respectively,
(Note 3). Such reserves are continually reviewed based upon changes
in the nature of the claims outstanding. Accordingly, the reserve is
subject to changes due to circumstances not presently known.
Claims Payable
Unpaid claims are based on estimates of reported claims. While
management believes the reserve for claims is adequate, the reserve
is continually reviewed and as adjustments become necessary, they are
reflected in current operations.
Net Loss Per Common Share
Net loss per common share has been computed based on the weighted
average number of common shares outstanding during each year.
Income Taxes
The Company calculates and records the amount of taxes payable or
refundable currently or in future years for temporary differences
between the financial statements basis and income tax basis based on
the current enacted tax laws.
Temporary differences are differences between the tax basis of assets
and liabilities and their reported amounts in the financial
statements that will result in taxable or deductible amounts in
future years. The Company's temporary differences result primarily
from net operating loss carryforwards.
Note 2 - Sale of Stock
On June 30, 1996, the Company entered into an agreement to sell
substantially all of the common stock of the Company in exchange for
$687,000 cash. In addition, the purchaser was required to invest
$1,500,000 in the Company in order to comply with certain capital
requirements (Note 4). This amount was paid subsequent to year end.
In conjunction with the acquisition of the outstanding stock of the
Company, the purchaser performed a reserve analysis and determined
reserves should be increased approximately $360,000 at June 30, 1996.
Additionally, at the date of acquisition, the intangible asset was
determined to be worthless and was written-off.
Note 3 - Claims Payable
The consolidated financial statements include the estimated liability
for unpaid losses from workers' compensation claims of approximately
$1,700,000 and $1,750,000 at December 31, 1995 and June 30, 1996,
respectively. The liabilities for losses are determined using case-
basis evaluations and represent estimates of the ultimate net cost of
all unpaid losses as of December 31, 1995 and June 30, 1996. These
estimates are continually reviewed and, as experience develops and
new information becomes known, the liability is adjusted as
necessary. The Company anticipates increase adjustments in the
liability in fiscal 1997 when it begins to underwrite new policies.
Such adjustments will be reflected in current operations.
Note 4 - Commitments and Contingency
Statutory Reporting, Capital Requirements, and Dividend and Retained
Earnings Restrictions
On December 31, 1995 and June 30, 1996, the insurance company had a
net surplus of approximately $1,047,162 and $2,187,000,
respectively.
Insurance companies are required to prepare statutory financial
statements in conformity with practices prescribed or permitted by
their state of domicile. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners, as well as state laws, regulations, and
general administrative rules. Permitted statutory accounting
practices are used when prescribed statutory practices do not address
the accounting for transactions.
Note 4 - Commitments and Contingency (continued)
Statutory Reporting, Capital Requirements, and Dividend and Retained
Earnings Restrictions (continued)
The State of Texas imposes certain capital requirements of insurance
companies on a statutory basis. Under the applicable regulations,
Montfort is required to maintain minimum capital stock of $370,000
and $1,000,000 and minimum surplus of $500,000 and $1,000,000 at
December 31, 1995 and June 30, 1996, respectively. At December 31,
1995 and June 30, 1996, the Company had capital and surplus of
$1,047,162 and $2,187,000, respectively, and has placed internal
restrictions on cash and investments for payment of the approximately
$1,750,000 of claims payable outstanding at June 30, 1996.
Note 5 - Investments
The following is a summary of investments:
</TABLE>
<TABLE>
<CAPTION>
Amortized Cost or Fair Value*
December 31, June 30,
1995 1996
<S> <C> <C>
T-bills $ - $949,341
Certificate of deposit 50,000 50,000
$50,000 $999,341
</TABLE>
* As the cost or amortized cost approximates fair value of all
investments at December 31, 1995 or June 30, 1996. There were
no unrealized gains or losses recorded during the year ended
December 31, 1995 or the six months ended June 30, 1996.
Note 6 - Other Assets
The State of Texas has established an assessment under the provisions
of the Texas Property and Casualty Insurance Guaranty Act whereby a
company makes contributions to the Texas Property and Casualty
Insurance Guaranty Association and can use these contributed funds as
a credit against future premium tax liabilities. As of December 31,
1995 and June 30, 1996, the Company has deposited $324,163 of
contributions, net of credits used in 1989 to 1991. No impairment is
necessary as the Company anticipates generating premium income in
future years from underwriting new workers' compensation insurance
policies.
Note 7 - Income Taxes
At December 31, 1995 and June 30, 1996, the Company has approximately
$3,200,000 and $3,600,000 of net operating loss carryforwards for
income tax reporting purposes which expire through 2010. A 100%
valuation allowance related to the deferred tax asset has been
recorded due to the uncertainty as to their ultimate utilization.
