<PAGE>
________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1997
Commission file number 0-28214
MEDICAL DEFENSE HOLDING CO.
(Exact name of registrant as specified in its charter)
Missouri 43-1696112
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1311 East Woodhurst, Springfield, Missouri 65804
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (417) 887-3120
__________________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed 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.
X Yes No
-------- --------
As of November 10, 1997 there were 999,998 shares of the Registrant's Class
A Common Stock, $.50 par value outstanding and there were 33,230 shares
outstanding of the Registrant's Class B Common Stock, $.50 par value.
________________________________________________________________________________
<PAGE>
MEDICAL DEFENSE HOLDING CO.
Quarterly Report - Form 10-Q
Table of Contents
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
ITEM 1. Financial Statements
Medical Defense Holding Co. Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996 (Unaudited) 3, 4
Medical Defense Holding Co. Consolidated Statements of Operations
for the quarter and nine months ended September 30, 1997 and 1996 (Unaudited) 5
Medical Defense Holding Co. Consolidated Statements of Cash Flow
for the nine months ended September 30, 1997 and 1996 (Unaudited) 6
Medical Defense Holding Co. Notes to Consolidated Financial Statements
(Unaudited) 7-17
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18-20
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 21
ITEM 2. Changes in Securities 21
ITEM 3. Defaults Upon Senior Securities 21
ITEM 4. Submission of Matters to a Vote of Security Holders 21
ITEM 5. Other Information 21
ITEM 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEDICAL DEFENSE HOLDING CO.
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and December 31, 1996
(Unaudited)
_________
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
------------- ------------
<S> <C> <C>
Investments:
Fixed maturity investments, at market value
(amortized cost of $76,528,599 and
$79,151,698, respectively) $76,794,619 $78,789,906
Short-term investments, at cost 8,537,084 4,508,740
----------- -----------
Total investments 85,331,703 83,298,646
Other assets:
Cash and cash equivalents 3,030,678 3,514,854
Accrued investment income 910,014 1,054,327
Premium receivable 2,334,752 1,895,965
Deferred policy acquisition costs 113,098
Reinsurance recoverable on loss
and loss expenses:
Paid claims 2,798
Unpaid claims 1,411,000 1,951,000
Property and equipment, net of accumulated
depreciation of $1,233,939 and
$1,163,536, respectively 1,056,516 1,117,542
Federal income tax:
Current 202,027 2,401,224
Deferred 1,296,000 1,204,000
Other assets 417,774 338,138
----------- -----------
Total assets $96,103,562 $96,778,494
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
<PAGE>
MEDICAL DEFENSE HOLDING CO.
CONSOLIDATED BALANCE SHEETS, CONTINUED
September 30, 1997 and December 31, 1996
(Unaudited)
_________
<TABLE>
<CAPTION>
LIABILITIES & September 30, December 31,
STOCKHOLDERS' EQUITY 1997 1996
------------- ------------
<S> <C> <C>
Liabilities:
Claims and policy liabilities:
Unpaid losses and loss adjustment expenses $61,541,266 $63,205,000
Unearned premiums 6,703,996 7,571,534
----------- -----------
Total claims and policy liabilities 68,245,262 70,776,534
Other liabilities:
Retrospective premium due reinsurers 1,970,047 1,970,047
Amounts withheld or retained by Company
for account of others 223,985 273,679
Other liabilities 2,521,931 1,922,744
----------- -----------
Total liabilities 72,961,225 74,943,004
----------- -----------
Stockholders' equity:
Preferred stock, par value $1.00 per share;
12,000,000 shares authorized; 9,202,038 and
9,208,851 shares issued and outstanding, respectively 9,202,038 9,208,851
Class A common stock, $0.50 per share;
2,000,000 shares authorized; 999,998 shares
issued and outstanding 499,999 499,999
Class B common stock, $0.50 per share;
48,000,000 shares authorized; 33,230 and 19,604
shares issued and outstanding, respectively 16,615 9,802
Additional paid-in capital 1,668,803 1,668,803
Unrealized gains (losses) on investments
(net of recoverable deferred income taxes (provision)
of $(90,881) and $122,565, respectively 176,417 (237,920)
Retained earnings 11,578,465 10,685,955
----------- -----------
Total stockholders' equity 23,142,337 21,835,490
----------- -----------
Total liabilities, redeemable preferred
stock, and stockholders' equity $96,103,562 $96,778,494
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
4
<PAGE>
MEDICAL DEFENSE HOLDING CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
________
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
Premiums earned $ 2,783,336 $ 3,270,672 $ 8,688,523 $ 9,704,034
Investment income 1,340,868 1,366,854 3,987,970 4,223,119
Net realized investment gains (losses) 22,797 (3,586) 29,740 68,543
Other income 71 96 536 401
----------- ----------- ----------- -----------
Total revenues 4,147,072 4,634,036 12,706,769 13,996,097
----------- ----------- ----------- -----------
Expenses:
Losses and loss adjustment expenses,
net of reinsurance recoveries of $(40,000),
$436,000, $540,000 and $436,000, respectively 3,766,912 5,774,132 10,194,156 15,219,500
Amortization of policy acquisition costs 6,592 65,044 6,592 182,116
Other underwriting and insurance
expenses 446,479 510,677 1,508,060 1,633,296
Investment expenses 59,017 59,105 179,968 197,182
Other operating expenses 39,125 37,396 138,929 83,952
----------- ----------- ----------- -----------
Total expenses 4,318,125 6,446,354 12,027,705 17,316,046
----------- ----------- ----------- -----------
Income/(Loss) before provision
for federal income taxes (171,053) (1,812,318) 679,064 (3,319,949)
----------- ----------- ----------- -----------
Provision for federal income taxes:
Current (22,000) (400,000) 92,000 (1,090,000)
Deferred (191,446) (75,298) (305,446) 625,658
----------- ----------- ----------- -----------
Total tax provision/(benefit) (213,446) (475,298) (213,446) (464,342)
----------- ----------- ----------- -----------
Net Income/(Loss) $ 42,393 $(1,337,020) $ 892,510 $(2,855,607)
=========== =========== =========== ===========
Earnings per common share and common
equivalent share (Note 9):
Primary-Weighted average shares 19,437,304 24,999,980 19,437,304 24,999,980
=========== =========== =========== ===========
Net income/(loss) per common share $0.00 $(0.05) $0.05 $(0.11)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
5
<PAGE>
MEDICAL DEFENSE HOLDING CO.
CONSOLIDATED STATEMENTS OF CASH FLOW
for the nine months ended September 30, 1997 and 1996
(Unaudited)
---------
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Operating activities:
Net income/(loss) $ 892,510 $ (2,855,607)
Adjustments to reconcile net income to net cash provided
by operating activities:
Realized investment gains (29,740) (68,543)
Depreciation and amortization of deferred policy
acquisition costs 86,633 246,068
Provision (benefit) for deferred income tax (305,446) 625,658
Change in assets and liabilities:
Accrual and amortization of investment income 66,196 106,283
Premiums receivable from policyholders (438,787) (400,384)
Deferral of policy acquisition costs (119,689) (202,633)
Reinsurance recoverable on loss & loss expenses:
Paid claims 2,798 (69,355)
Unpaid claims 540,000 436,000
Unpaid losses & loss adjustment expenses (1,663,734) (350,620)
Unearned premiums (867,538) 244,076
Amounts withheld or retained by Company on account
of others (49,694) (78,671)
Income tax 2,199,197 (2,140,000)
Other assets (79,636) 209,581
Other liabilities 599,187 687,756
------------ ------------
Net cash provided (used) by operating activities 832,257 (3,610,391)
------------ ------------
Investing activities:
Proceeds from:
Fixed maturity investments - Sales 4,563,750 5,572,813
Fixed maturity investments - Maturities 6,733,977 4,785,684
Short-term investments 12,050,000 16,890,844
Purchase of investments:
Fixed maturity investments (8,795,898) (7,026,093)
Short-term investments (15,849,247) (16,221,208)
Purchases of property and equipment (net) (19,015) (137,462)
------------ ------------
Net cash (used) provided by investing activities (1,316,433) 3,864,578
------------ ------------
Net (decrease) increase in cash and cash equivalents (484,176) 254,187
Cash and cash equivalents, beginning of period 3,514,854 4,952,745
------------ ------------
Cash and cash equivalents, end of period $ 3,030,678 $ 5,206,932
============ ============
Federal income taxes (refunded) paid $ (2,107,197) $ 1,050,000
============ ============
</TABLE>
The accompanying notes are an integral part of
the accompanying financial statements.
6
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
--------
1. Organization and Related Matters:
--------------------------------
Medical Defense Holding Co. (the "Company") is a Missouri general business
corporation formed on November 28, 1994, for the purpose of facilitating
the consummation of a series of transactions whereby Medical Defense
Associates ("MDA") converted from a mutual assessment insurance
organization under Chapter 383 RSMo to a wholly-owned stock insurance
company subsidiary of the Holding Company. MDA's conversion was completed
on June 26, 1995 in accordance with an agreement and plan of conversion
dated November 29, 1994. The agreement and plan of conversion was approved
by eligible policyholders at a special meeting on April 3, 1995.
MDA was organized in 1976 as a mutual assessment insurance organization for
the purpose of providing protection against loss from medical professional
liability claims for Missouri health care professionals. MDA's wholly-owned
subsidiary, Medical Defense Services Corp. ("MDS") provides management
services primarily to MDA. Medical Defense Services Corp.'s wholly-owned
subsidiary, Medical Defense Insurance Company ("MDIC"), is a stock
insurance company organized under Chapter 379 RSMo for the purpose of
providing protection against loss from medical professional liability
claims. MDIC is licensed to operate in Missouri and Kansas but only wrote
business in Kansas from its inception in 1982 until September 1, 1988 when
it ceased writing business. In June of 1994, MDIC again began writing
policies in Kansas.
2. Basis of Presentation:
---------------------
All September 30, 1997 and 1996 information contained in the following
footnotes is unaudited. It is management's opinion that the financial
statements as of September 30, 1997 and 1996 and for the nine months then
ended reflect all adjustments which are necessary to present a fair
statement of results for the interim periods presented. The financial
statements of MDA and its subsidiaries as of September 30, 1997 and 1996,
have been consolidated with the Company in a manner similar to a pooling of
interests to reflect the conversion of MDA to a wholly-owned stock
subsidiary of the Company, effective on June 26, 1995. All significant
intercompany transactions have been eliminated. All other adjustments made
are of a normal recurring nature.
3. Summary of Significant Accounting Policies:
------------------------------------------
The following is a description of the significant accounting policies under
generally accepted accounting principles followed by the Company in the
preparation of the accompanying consolidated financial statements:
A. Pervasiveness of Estimates:
--------------------------
The preparation of consolidated 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 at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
7
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
---------
B. Recently Issued Accounting Standards:
------------------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128"). SFAS No. 128 specifies revised computational
guidelines, presentation and disclosure requirements for earnings per
share and supersedes Accounting Principal Board Opinion No. 15. SFAS
No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Earlier
application is not permitted, however, upon adoption SFAS No. 128
requires restatement of all prior periods earnings per share
information. The Company has not yet determined the impact SFAS No.
128 would have on earnings per share.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"), which is effective for fiscal years
beginning after December 31, 1997. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-
purpose financial statements. The Company has not yet determined the
effect SFAS 130 will have on the financial statements.
C. Investments:
-----------
Held-to-maturity debt securities that the Company has the positive
intent and ability to hold to maturity are reported at amortized cost.
Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and are to be reported at fair value, with unrealized gains
and losses included in earnings. Debt and equity securities not
classified in the other two categories are classified as available-
for-sale securities and reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component
of surplus as regards policyholders.
The accompanying consolidated GAAP financial statements of the Company
for the nine months ended September 30, 1997 and the year ended
December 31, 1996 have been prepared in accordance with SFAS 115, and
the Company has classified all investments in fixed maturities as
available for sale. Should the Company experience declines in market
value that are other than temporary, the difference between amortized
cost and market would be recognized through current earnings.
Fair value is defined as market value based on third-party quoted
market prices or, when unavailable, on similar investments.
Investment income includes amortization of premium and accretion of
discount relating to fixed maturities acquired at other than par
value.
D. Reinsurance:
-----------
The Company accounts for reinsurance receivables and prepaid
reinsurance premiums as assets.
8
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
E. Income Taxes:
------------
The Company recognizes deferred tax liabilities and assets based on the
expected future tax effect of events that have been included in the
financial statements or tax returns.
4. Capital Stock:
-------------
The Company has issued shares of $1.00 par value redeemable convertible
preferred stock to the eligible policyholders of MDA in exchange for their
mutual policyholders' rights in MDA. Each share of preferred stock is
convertible into two shares of Medical Defense Holding Co. Class B Common
Stock, at the holder's option, and may be converted at any time prior to
redemption. Each share of preferred stock is redeemable, at the Company's
option, after three years from the date of issuance at a price per share
of $1.00. The preferred stock does not provide a stated dividend and no
dividends may be paid on any Company common stock while there are
preferred stock shares outstanding. Subsequent to the conversion of MDA to
a stock company, 16,615 shares of preferred stock were converted to 33,230
shares of Class B common stock.
The Company has issued shares of $0.50 par value Class A common stock in
accordance with an agreement and plan of conversion dated November 29,
1994, in exchange for cash.
5. Investments:
-----------
The following information summarizes the difference between amortized cost
and market value of fixed maturities investments:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
September 30, 1997
- ---------------------------------------------
U.S. Treasury debt securities and obligations
of U.S. Government corporations and
agencies $38,458,804 $300,301 $164,739 $38,594,366
Corporate debt securities 6,145,805 71,969 13,787 6,203,987
Mortgage-backed securities 27,902,580 247,986 184,938 27,965,628
Other debt securities 4,021,410 33,246 24,018 4,030,638
----------- -------- -------- -----------
$76,528,599 $653,502 $387,482 $76,794,619
=========== ======== ======== ===========
December 31, 1996
- ---------------------------------------------
U.S. Treasury debt securities and obligations
of U.S. Government corporations and
agencies $40,130,465 $207,149 $336,604 $40,001,010
Corporate debt securities 6,371,525 78,063 37,161 6,412,427
Mortgage-backed securities 29,829,606 188,864 434,881 29,583,589
Other debt securities 2,820,102 13,306 40,528 2,792,880
----------- -------- -------- -----------
$79,151,698 $487,382 $849,174 $78,789,906
=========== ======== ======== ===========
</TABLE>
9
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
5. Investments, continued:
----------------------
The change in net unrealized holding gain or loss on available for sale
securities, net of deferred taxes, for the nine months ended September 30,
1997 and the year ended December 31, 1996, is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
------------- ------------
$ 414,337 $(1,108,031)
========= ============
</TABLE>
The amortized cost and estimated market value of debt securities by
contractual maturity are shown as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
September 30, 1997
- --------------------------------------
Due in one year or less $ 9,421,189 $ 9,420,738
Due after one year through five years 38,972,335 39,053,617
Due after five years through ten years 21,896,582 22,054,862
Due after ten years 6,238,493 6,265,402
----------- -----------
$76,528,599 $76,794,619
=========== ===========
</TABLE>
For purposes of the above, bonds without prepayment characteristics have been
included at their stated maturity date. Bonds with prepayment features are
included at their estimated maturity date as supplied by the Company's
investment adviser.
Accrued investment income at September 30, 1997 and December 31, 1996, is as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<C> <C>
<S>
U.S. Treasury securities $616,229 $ 726,630
Corporate bonds 91,412 140,595
Mortgage-backed securities 182,712 174,860
Other debt securities 19,661 12,242
-------- ----------
$910,014 $1,054,327
======== ==========
</TABLE>
10
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
5. Investments, continued:
-----------
Securities on Deposit With Statutory Authorities:
------------------------------------------------
To comply with the Missouri Department of Insurance, MDA had a U.S.
Treasury Note with a par value of $1,400,000 as of September 30, 1997
and December 31, 1996 on deposit with the State of Missouri. In
addition, to comply with a special agreement with the Missouri
Department of Insurance related to the conversion of MDA to a Chapter
379 stock insurance company and the release of MDA members from
potential future assessment liability, MDA had U.S. Treasury Notes
with a total par value of $5,000,000, on deposit with the State of
Missouri at September 30, 1997 and December 31, 1996.
To comply with the Missouri Department of Insurance, MDIC had a U.S.
Treasury Note with a par value of $850,000 as of September 30, 1997
and December 31, 1996, on deposit with the State of Missouri.
Escrow Funds:
------------
Pursuant to the settlement agreement for a specific claim, MDA has
deposited $400,000 in escrow to guarantee future annuity payments. The
Company receives all earnings on the escrowed funds. At September 30,
1997 and December 31, 1996, the escrowed funds were invested in a
$400,000 par value U.S. Treasury Note with a fair value of $403,564
and $400,876, respectively, which is included with investments on the
balance sheet. This U.S. Treasury Note matures April 30, 2001.
Net investment income by source was as follows for the nine months ended
September 30, 1997 and 1996:
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Investment income:
Fixed maturity investments $3,667,168 $3,867,877
Short-term investments 320,802 355,242
---------- ----------
Total investment income 3,987,970 4,223,119
Less investment expenses 179,968 197,182
---------- ----------
Net investment income $3,808,002 $4,025,937
========== ==========
</TABLE>
11
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
___________
5. Investments, continued:
-----------
Realized gains on investments reflected in the results of operations for
the nine months ended September 30, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Sale of fixed maturity investments:
Realized gains $38,253 $74,849
Realized losses (8,513) (6,306)
------- -------
Net realized gains $29,740 $68,543
======= =======
</TABLE>
6. Statutory Disclosures:
---------------------
Net income and surplus reported by MDA separately in its reports filed or
to be filed with the Missouri Department of Insurance utilizing statutory
accounting principles and practices prescribed or permitted by the Missouri
Department of Insurance are as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Net income/(loss) for nine months ended September 30 $ 319,691 $(2,432,703)
=========== ===========
Surplus (including equity in MDS and
MDIC), September 30 $18,962,189 $21,467,433
=========== ===========
</TABLE>
Net income and surplus reported by MDIC separately in its reports filed or
to be filed with the Missouri Department of Insurance utilizing statutory
accounting principles and practices prescribed or permitted by the Missouri
Department of Insurance are as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Net income for nine months ended September 30 $ 44,044 $ 19,242
========== ==========
Surplus, September 30 $4,376,742 $4,424,799
========== ==========
</TABLE>
12
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
7. Federal Income Tax:
------------------
The Company files a consolidated federal income tax return. MDA and MDIC are
statutorily exempt from state income taxes. State income taxes relating to
the Company and MDS are included in other operating expenses in the
consolidated statement of income. None of the Company's income tax filings
are currently under examination.
The following table accounts for the differences between the total actual tax
provision and the amounts obtained by applying the statutory U.S. federal
income tax rate to income before income taxes:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
--------------------- ---------------------
Income Effective Income Effective
Taxes Tax Rate Taxes Tax Rate
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Pre-tax income calculated at
statutory tax rates $ 230,882 34.00% $(1,128,783) (34.00)%
Nondeductible expenses 11,674 1.72 19,319 0.58
Other permanent differences (16,142) (2.38) (7,608) (0.23)
Change in valuation allowance (439,860) (64.77) 652,730 19.66
--------- ------ ----------- ------
Provision for income taxes $(213,446) (31.43)% $ (464,342) (13.99)%
========= ====== =========== ======
</TABLE>
The components of the net deferred tax asset at September 30, 1997 and
December 31, 1996, are as follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
Deferred Deferred Deferred Deferred
Tax Asset Tax Liability Tax Asset Tax Liability
--------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Tax discounting of loss reserves $ 4,008,245 $ 4,069,721
Tax acceleration of unearned premium 455,872 514,864
Deferred policy acquisition costs $ 13,946
Unrealized gain/loss 90,881 122,565
----------- -------- ----------- -----------
$ 4,464,117 $104,827 $ 4,707,150 $ -
=========== ======== =========== ===========
Net deferred federal income tax asset $ 4,359,290 $ 4,707,150
Valuation allowance (3,063,290) (3,503,150)
----------- -----------
Net realized deferred tax asset $ 1,296,000 $ 1,204,000
=========== ===========
</TABLE>
13
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
7. Federal Income Tax, continued:
------------------
The valuation allowance represents the difference between the total deferred
tax asset related to loss reserve discounting required by the Internal
Revenue Service and the amount that is more likely than not to be realized.
Medical malpractice is a long tail line of business. MDA's payout pattern as
well as the industry payout pattern for this line of business is expected to
be 15 years or longer.
Management evaluates the payout pattern based on advice from its outside
actuary concerning trends in claim frequencies and severities and needed
changes in future premium rates, industry trends and experience of direct
Missouri competitors in these matters.
Projection of future income is inherently uncertain and the achievability of
any projection is made more difficult by the length of the discount period.
Historical losses cannot be adjusted precisely to future cost levels and the
impacts of future emergence of new classes of losses or types of losses
which may not be represented sufficiently in MDA's data base or which are
not yet quantifiable, cannot be precisely anticipated. Utilizing an outside
actuary, management believes that it can reasonably estimate the amount of
the loss reserves which will likely settle in the next two years. Based on
this estimate, management determines how much of the discount will likely
reverse and could be recovered, if necessary, from taxes paid in the two-
year carryback period.
Management does not believe it can reasonably determine the amount of loss
reserve deferred tax benefit which can be recovered from future taxable
income arising more than three years in the future, using a more likely than
not standard.
The change in the valuation allowance is as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
$(439,860) $652,730
========= ========
</TABLE>
14
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
8. Unpaid Losses and Loss Adjustment Expenses:
------------------------------------------
The Company's reserves for loss and loss adjustment expenses represent the
estimated ultimate cost of all losses and loss adjustment expenses which are
unpaid at the balance sheet date, on a consolidated basis, for both MDA and
MDIC.
The reserves include estimates of future trends in claim frequency, severity
and cash flow, which could vary as the losses are ultimately settled; thus,
the ultimate liability may be in excess of, or less than, the amounts
provided in the accompanying financial statement.
Company management believes the reserves are reasonably stated to cover the
ultimate cost of losses and related loss adjustment expenses which are
unpaid at September 30, 1997 and December 31, 1996, respectively; however,
as the reserves are based on estimates, there can be no assurance that the
ultimate liability will not differ from such estimates.
MDIC's reserves for loss and loss adjustment expenses have not been
actuarially reviewed due to the few number of claims outstanding. MDIC's
reserves represent less than 1% of total reserves for the periods
represented by the financial statements.
15
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
8. Unpaid Losses and Loss Adjustment Expenses, continued:
------------------------------------------
Activity in the liability for unpaid losses and loss adjustment expenses is
summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Balance at January 1 $63,205,000 $65,660,000
Less reinsurance recoverables 1,951,000 2,383,000
----------- -----------
Net balance at January 1 61,254,000 63,277,000
----------- -----------
Incurred related to:
Current year 10,804,112 15,802,388
Prior years (609,956) 4,576,958
----------- -----------
Total incurred 10,194,156 20,379,346
----------- -----------
Paid related to:
Current year 471,188 749,388
Prior years 10,846,702 21,652,958
----------- -----------
Total paid 11,317,890 22,402,346
----------- -----------
Net balance at end of period 60,130,266 61,254,000
Plus reinsurance recoverables 1,411,000 1,951,000
----------- -----------
Balance at end of period $61,541,266 $63,205,000
=========== ===========
</TABLE>
9. Net Income Per Common Share:
---------------------------
Net income per common share is computed using net income divided by the
weighted average number of common shares and common share equivalents
outstanding. All of the Company's outstanding shares of preferred stock are
convertible to common stock at a ratio of two shares of common stock for
each one share of preferred stock. Since the Company's preferred stock has
no stated dividend rate, and thus, no effective yield, these securities are
considered common stock equivalents for the purpose of computing net income
per common share.
16
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
_________
9. Net Income Per Common Share:
---------------------------
Other than the preferred stock discussed above, the Company does not have
any other potentially dilutive stocks. Therefore, the computations for fully
dilutive net income per common share are not presented since the results do
not differ from primary net income per common share.
Following are the net income per common share computations for the nine
months ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Net income (loss) $ 892,510 $(2,855,607)
=========== ===========
Weighted average common shares outstanding 1,033,228 1,019,602
Weighted average common stock options expressed
as common stock equivalents 18,404,076 23,980,378
----------- -----------
Weighted average common and equivalent
shares outstanding 19,437,304 24,999,980
=========== ===========
Net income (loss) per common share $ 0.05 $ (0.11)
=========== ===========
</TABLE>
10. Commitments and Contingencies:
-----------------------------
The Company is party to a number of insurance claims arising in the normal
course of business. While the results of litigation cannot be predicted with
certainty, management, based upon the advice of Company's counsel, believes
that the final outcome of such litigation will not have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Medical Defense Holding Co. ("MDHC") is a Missouri general business corporation
formed for the purpose of facilitating the conversion of Medical Defense
Associates ("MDA") from a mutual insurance association to a stock insurance
company. On June 26, 1995, the conversion was completed with the exchange of
the policyholders' rights in MDA, the mutual insurance association, for shares
of convertible Preferred Stock in MDHC, the parent holding company. MDHC owns
all of the outstanding shares of MDA.
The accompanying consolidated financial statements and related discussion
include the accounts of MDHC and its wholly-owned insurance subsidiary, MDA, and
have been consolidated with MDHC in a manner similar to a pooling of interests
to reflect the conversion of MDA to a wholly-owned stock subsidiary of MDHC.
MDHC does not have any significant revenue producing operations of its own other
than through its ownership of MDA. Cash flow within MDHC consists of investment
income and operating expenses. Also included in the accompanying consolidated
financial statements are MDA's wholly-owned subsidiaries, Medical Defense
Services Corp. ("MDS") and Medical Defense Insurance Company ("MDIC"). MDS is a
wholly-owned subsidiary of MDA and provides management services primarily to
MDA. MDIC is a wholly-owned subsidiary of MDS and is a stock insurance company
organized under Chapter 379 RSMo for the purpose of providing protection against
loss from medical professional liability claims. During the past nine months,
MDIC has written a small amount of premium, less than $75,000, entirely in the
state of Kansas.
On August 8, 1997, MDHC initiated a tender offer for up to 5,000,000 shares of
its Preferred Stock, $1.00 par value. The purpose of this offer was to respond
to the desires of certain shareholders for a source to liquidate all or a
portion of their securities holdings in the Company, as no public market has
developed for the Preferred Stock and MDHC does not anticipate that such a
market will develop. This tender offer was conducted in a method commonly
referred to as a "Dutch auction". Under a Dutch auction method, shareholders
tender the shares they wish to sell at a price within a pre-selected range and
at the close of the tender offer the company selects the lowest purchase price
which will permit it to acquire up to the pre-announced number of shares. After
the purchase price has been selected, all tendering shares purchased by the
company are purchased at the same price, regardless of the price at which the
tendering shareholder tendered the shares. This tender offer by MDHC, which
concluded on October 3, 1997, had a pre-selected purchase price range of not
less than $.30 or in excess of $.40 per Preferred Share in cash, subject to the
terms and conditions of the offer. The tender offer concluded with 1,721,445
shares of Preferred Stock being accepted for purchase at a price of $.40 per
share.
Results of Operations
MDHC recorded a 10.5% decrease in total revenues in the third quarter of 1997
and a 9.2% decrease for the nine months ended September 30, 1997, compared with
the same periods in the prior year. The decrease in total revenues during the
quarter and the nine month period ended September 30, 1997, was primarily due to
a decrease in premium revenue. This decrease in premiums earned, which occurred
although MDA instituted a 15% overall rate increase effective January 1, 1997,
was due to a decline in premiums written during the first nine months of 1997 of
approximately $2,070,000 or 21.5% compared to the same time frame in 1996. This
decrease in premiums written was the result of a 15.8% decline in total
policyholders which was concentrated in the higher premium surgical
classifications. Management believes that the decline in policyholders is the
result of insureds becoming employees of health care systems that self-insure
their professional liability coverage and aggressive pricing used by some
competitors. There can be no assurance that this trend will not continue. The
remaining decreases were the result of various other changes in the Company's
book of business which primarily relate to specialty classifications and
discounts which policyholders are eligible to receive.
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Results of Operations, continued
Investment income decreased less than 2% for the quarter ended September 30,
1997, and decreased by 5.6% for the nine months ended September 30, 1997,
compared to the same periods in 1996. This variation was primarily the result
of fluctuations in market interest rates during the first nine months of 1997,
compared with the same period in 1996. The company had realized investment
gains of $22,797 in the quarter and realized investment gains of $29,740 for the
nine month period ended September 30, 1997, compared to realized investment
losses of $3,586 and $68,543 in the same prior year periods, respectively. The
realized investment losses for the quarter ended September 30, 1996, were the
result of pre-payments on fixed-income investments.
MDHC's total expenses for the quarter and nine month periods ended September 30,
1997, represented approximately 104% and 95% of total revenues, respectively,
compared to 139% and 124% during the same periods in 1996. The decrease in
expenses during the first nine months of 1997, compared to the same period in
1996, is almost entirely the result of decreased claim losses and claim loss
adjustment expenses which decreased 35% for the quarter and 33% for the nine
months prior. As the result of an increase in claims paid late in the first
quarter and during the second quarter of 1996, the Company's management retained
its independent actuary to prepare an interim reserve study as of June 30, 1996.
Based on that study and an additional study performed by another actuary, the
Company determined to strengthen its reserve for losses and loss adjustment
expenses by approximately $2.4 million as of June 30, 1996. At September 30,
1996, as in prior years, the Company had its actuary perform an updated reserve
study and based on this study the Company recorded an additional approximate
$2.2 million increase in reserves for claim losses and claim loss adjustment
expenses. This reserve strengthening in 1996 related primarily to total
expected ultimate losses for 1993 through 1996. Actuarial studies performed
during 1997 do not indicate additional reserve strengthening is necessary at
this time, as was the case in the prior year. The Company will continue to
monitor the level of claim severity, and to seek input from actuaries as
appropriate. There can be no assurance that the estimates of the actuaries will
prove to be accurate, or that the Company's reserve for loss and loss adjustment
expense is at the appropriate level. In the event that claim severity increases
in the future, current reserve amounts may not prove to be adequate and may be
increased. However, if claim severity decreases in the future, current reserve
amounts may prove to be adequate or redundant.
Other underwriting and insurance expenses for the quarter and nine months ended
September 30, 1997, decreased approximately 13% and 8%, respectively, compared
to the same periods in 1996. This decrease is the result of a slight decrease
in salaries and benefits due to a small decline in the number of employees and
also, a decline in premium tax expense resulting from the decrease in written
premiums discussed earlier. Investment expenses for the quarter and nine months
ended September 30, 1997, remained relatively stable compared to the prior
periods.
Financial Condition
MDHC's total consolidated assets were $96,103,562 as of September 30, 1997
consisting primarily of cash and investments which comprised approximately 92%
of total assets. Approximately 81% of MDHC's total assets consisted of either
cash, U.S. Treasury bonds, U.S. government agency bonds, or other investments
either collateralized or guaranteed by U.S. government agencies or securities.
MDHC's total assets declined $674,932 or less than 1% during the nine months
ended September 30, 1997. MDHC does not hold, either directly or indirectly,
any real estate owned for investment purposes or any fixed maturity investments
rated below AA by nationally recognized rating agencies. MDHC's total
investment composition is not anticipated to change substantially in the near
future.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Financial Condition, continued
MDHC's total consolidated liabilities as of September 30, 1997, were
$72,961,225, a decline of less than 3% from December 31, 1996. Approximately
84% of MDHC's consolidated total liabilities at September 30, 1997, relate to
unpaid loss and loss adjustment expenses which, due to loss payments exceeding
losses incurred by approximately $1,120,000, have declined 2.6% from the prior
year end. In addition, unearned premiums declined approximately $865,000 or
11.5% from the prior year end which is the result of the decrease in premiums
written discussed earlier.
Stockholders' equity increased 6% as of September 30, 1997, compared with the
prior year-end due to an increase in the net unrealized gains on investments of
$414,337 and net income for the period of $892,510.
Liquidity and Capital Resources
MDHC's cash flow is generated from its operations and investment portfolio. Net
cash provided by operating activities at September 30, 1997, increased by
$4,442,648, to $832,257, compared to cash used of $3,610,391 at September 30,
1996, to an increase in cash provided by operating activities of $832,257 at
September 30, 1997. This increase in cash provided by operating activities was
primarily a combination of a decrease in claim loss and loss adjustment expense
payments of approximately $3.8 million and an increase in the net effect of
current and deferred taxes of approximately $3.4 million for the nine months
ended September 30, 1997, compared to the same period in 1996. These increases
were partially offset by a decline in premiums written of approximately $2.1
million and other various changes of approximately $0.6 million, when compared
to the same periods in 1996.
MDHC's investing activities resulted in a net decrease in cash used by investing
activities of $1,316,433 at September 30, 1997, compared to an increase in cash
provided by investing activities of $3,864,578 for the same period in 1996.
This decrease was due to the utilization of proceeds from operating activities
for the acquisition of new fixed-maturity investments and short-term
investments.
MDHC's cash flow from operations and its investment portfolio are utilized to
meet its obligations related to payment of losses and loss adjustment expenses,
payment of operating expenses, and other needs as deemed necessary from time to
time. MDHC anticipates that its future cash flow will be sufficient to meet the
Company's ongoing obligations for the foreseeable future.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
No. 128 specifies revised computational guidelines, presentation and disclosure
requirements for earnings per share and supersedes Accounting Principal Board
Opinion No. 15. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. Earlier
application is not permitted, however, upon adoption SFAS No. 128 requires
restatement of all prior periods earnings per share information. The Company
has not yet determined the impact SFAS No. 128 would have on earnings per share.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"), which is effective for fiscal years beginning after December 31, 1997.
SFAS 130 establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. The Company has not yet determined the
effect SFAS 130 will have on the financial statements.
20
<PAGE>
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) Exhibits.
The exhibits to this report are listed in the Exhibit Index on pages E-1
and E-2 of this report, which index is incorporated herein by reference.
(b) Reports on Form 8-K.
None.
21
<PAGE>
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 thereunto duly authorized.
<TABLE>
<CAPTION>
Medical Defense Holding Co.
(Registrant)
November 10, 1997 /s/ Ronald G. Benson
- ---------------------------------- -------------------------------------------------------------
Date Ronald G. Benson
<S> <C>
President, CEO, and Chairman
of the Board (principal
executive officer); Director
November 10, 1997 /s/ Samuel J. Pippin
- ---------------------------------- -------------------------------------------------------------
Date Samuel J. Pippin
Director of Accounting and
Finance (principal financial
and accounting officer)
</TABLE>
22
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
- ------- ----------- ----
<S> <C> <C>
3.1 --Articles of Incorporation of Medical Defense Holding Co. (Filed as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 (file #33-87444) and hereby incorporated
by reference.)............................................................................
3.2 --Bylaws of Medical Defense Holding Co. (Filed as Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1 (file #33-87444) and hereby incorporated by reference.)
4.1 --Right of First Refusal Agreement (Filed as Exhibit 4.1 to the Registrant's Registration
Statement on Form S-1 (file #33-87444) and hereby incorporated by reference.).............
4.2 --Specimen Stock Certificate for Preferred Stock (Filed as Exhibit 4.2 to the Registrant's
Registration Statement on Form S-1 (file #33-87444) and hereby incorporated by reference.)
4.3 --Specimen Stock Certificate for Class A Common Stock (Filed as Exhibit 4.3 to the
Registrant's Registration Statement on Form S-1 (file #33-87444) and hereby incorporated
by reference.)............................................................................
4.4 --Specimen Stock Certificate for Class B Common Stock (Filed as Exhibit 4.4 to the
Registrant's Registration Statement on Form S-1 (file #33-87444) and hereby incorporated
by reference.)............................................................................
10.1 --1983 Management Agreement between Medical Defense Associates and Medical Defense Services
Corp., as amended (Filed as Exhibit 10.1 to the Registrant's Registration Statement on
Form S-1 (file #33-87444) and hereby incorporated by reference.)..........................
10.2 --1983 Management Agreement between Medical Defense Insurance Company and Medical Defense
Services Corp., as amended (Filed as Exhibit 10.2 to the Registrant's Registration
Statement on Form S-1 (file #33-87444) and hereby incorporated by reference.).............
10.3 --Amended and Restated Employment Agreement between Ronald G. Benson and Medical Defense
Services Corp., dated January 1, 1993 (Filed as Exhibit 10.3 to the Registrant's
Registration Statement on Form S-1 (file #33-87444) and hereby incorporated by reference.)
10.4 --Amended and Restated Employment Agreement between Geraldine Hatfield (Morrison) and
Medical Defense Services Corp., dated January 1, 1993 (Filed as Exhibit 10.4 to the
Registrant's Registration Statement on Form S-1 (file #33-87444) and hereby incorporated
by reference.)............................................................................
10.5 --Amended and Restated Employment Agreement between Arlen D. Winsky and Medical Defense
Services Corp., dated January 1, 1993 (Filed as Exhibit 10.5 to the Registrant's
Registration Statement on Form S-1 (file #33-87444) and hereby incorporated by reference.)
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
- ------- ----------- ----
<S> <C> <C>
10.6 --Amended and Restated Employment Agreement between David W. Brown and Medical Defense
Services Corp., dated January 1, 1993 (Filed as Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1 (file #33-87444) and hereby incorporated by reference.)
10.7 --Amended and Restated Employment Agreement between Gary L. Robinson and Medical Defense
Services Corp., dated January 1, 1993 (Filed as Exhibit 10.7 to the Registrant's
Registration Statement on Form S-1 (file #33-87444) and hereby incorporated by reference.)
10.8 --Amended and Restated Employment Agreement between John J. Stamatis and Medical Defense
Services Corp., dated January 1, 1993 (Filed as Exhibit 10.8 to the Registrant's
Registration Statement on Form S-1 (file #33-87444) and hereby incorporated by reference.)
10.9 --Medical Defense Services Corp. Integrated Money Purchase Pension and Trust Agreement,
between, Medical Defense Services Corp. and Boatmen's Trust Company, as amended, dated
December 31, 1990 (Filed as Exhibit 10.9 to the Registrant's Registration Statement on
Form S-1 (file #33-87444) and hereby incorporated by reference.)..........................
10.10 --Carnahan, Evans, Cantwell & Brown, P.C. Defined Contribution Prototype Plan and Trust
Agreement, adopted December 31, 1990 (Filed as Exhibit 10.10 to the Registrant's
Registration Statement on Form S-1 (file #33-87444) and hereby incorporated by reference.)
10.11 --Medical Defense Services Corp. Executive Compensation Plan, dated October 15, 1993 (Filed
as Exhibit 10.11 to the Registrant's Registration Statement on Form S-1 (file #33-87444)
and hereby incorporated by reference.)....................................................
10.12 --Form of Deposit Agreement between Medical Defense Associates and Central Bank, Jefferson
City, Missouri (Filed as Exhibit 10.12 to the Registrant's Registration Statement on Form
S-1 (file #33-87444) and hereby incorporated by reference.)...............................
10.13 --Form of Employment Guaranty Agreement by Medical Defense Holding Co. guaranteeing
existing Medical Defense Services Corp.'s employment agreements (Filed as Exhibit 10.13
to the Registrant's 1995 Annual Report on Form 10K (file #33-87444) and hereby
incorporated by reference.)...............................................................
11.1 --Statement re computation of per share earnings (Disclosed in Note 9 to the Registrant's
accompanying unaudited consolidated financial statements included in Part I of this form
10Q)......................................................................................
21.1 --Subsidiaries of the registrant (Filed as Exhibit 21.1 to the Registrant's 1996 Annual
Report on Form 10K and hereby incorporated by reference.).................................
28.1 --Information from reports furnished to state insurance regulatory authorities(Filed as
Exhibit 28.1 to the Registrant's 1996 Annual Report on Form 10K and hereby incorporated
by reference.)............................................................................
</TABLE>
E-2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND> This schedule contains summary financial information extracted from
the Company's financial statements for the nine months ended September 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 76,794,619
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 85,331,703
<CASH> 3,030,678
<RECOVER-REINSURE> 1,411,000
<DEFERRED-ACQUISITION> 113,098
<TOTAL-ASSETS> 96,103,562
<POLICY-LOSSES> 61,541,266
<UNEARNED-PREMIUMS> 6,703,996
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 223,985
<NOTES-PAYABLE> 0
<COMMON> 516,614
0
9,202,038
<OTHER-SE> 13,423,685
<TOTAL-LIABILITY-AND-EQUITY> 96,103,562
8,688,523
<INVESTMENT-INCOME> 3,987,970
<INVESTMENT-GAINS> 29,740
<OTHER-INCOME> 536
<BENEFITS> 10,194,156
<UNDERWRITING-AMORTIZATION> 6,592
<UNDERWRITING-OTHER> 1,508,060
<INCOME-PRETAX> 679,064
<INCOME-TAX> (213,446)
<INCOME-CONTINUING> 892,510
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 892,510
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
<RESERVE-OPEN> 63,205,000
<PROVISION-CURRENT> 10,804,112
<PROVISION-PRIOR> (609,956)
<PAYMENTS-CURRENT> 471,188
<PAYMENTS-PRIOR> 10,846,702
<RESERVE-CLOSE> 61,541,266
<CUMULATIVE-DEFICIENCY> (609,956)
</TABLE>
