<PAGE>
________________________________________________________________________________
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission file number 0-28214
MEDICAL DEFENSE HOLDING CO.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
(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 August 5, 1998 there were 999,998 shares of the Registrant's Class A
Common Stock, $.50 par value outstanding and there were 53,400 shares
outstanding of the Registrant's Class B Common Stock, $.50 par value.
________________________________________________________________________________
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEDICAL DEFENSE HOLDING CO.
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and December 31, 1997
________
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
ASSETS 1998 1997
-------- ------------
<S> <C> <C>
Investments:
Fixed maturity investments, at market value
(amortized cost of $68,116,827 and
$73,477,904, respectively) $68,919,580 $74,091,837
Short-term investments, at market 7,298,318 7,242,682
----------- -----------
Total investments 76,217,898 81,334,519
Other assets:
Cash and cash equivalents 2,310,420 2,955,161
Accrued investment income 917,373 998,833
Premium receivable 1,142,179 1,521,050
Reinsurance recoverable on loss
and loss expenses:
Unpaid claims 1,373,000 1,373,000
Property and equipment, net of accumulated
depreciation of $1,291,746 and
$1,250,772, respectively 999,565 1,028,089
Federal income tax:
Current 383,879 383,879
Other assets 449,121 336,094
----------- -----------
Total assets $83,793,435 $89,930,625
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
<PAGE>
MEDICAL DEFENSE HOLDING CO.
CONSOLIDATED BALANCE SHEETS, CONTINUED
June 30, 1998 and December 31, 1997
________
<TABLE>
<CAPTION>
(Unaudited)
LIABILITIES & June 30, December 31,
STOCKHOLDERS' EQUITY 1998 1997
-------- ------------
Liabilities:
Claims and policy liabilities:
<S> <C> <C>
Unpaid losses and loss adjustment expenses $55,061,753 $58,654,324
Unearned premiums 4,296,039 6,059,398
----------- -----------
Total claims and policy liabilities 59,357,792 64,713,722
Other liabilities:
Retrospective premium due reinsurers 1,113,047 1,113,047
Amounts withheld or retained by Company
for account of others 365,617 252,429
Other liabilities 255,924 1,496,619
----------- -----------
Total liabilities 61,092,380 67,575,817
----------- -----------
Stockholders' equity:
Preferred stock, par value $1.00 per share;
12,000,000 shares authorized; 7,426,010 and
7,436,095 shares issued and outstanding, respectively 7,426,010 7,436,095
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; 53,400 and 33,230
shares issued and outstanding, respectively 26,700 16,615
Additional paid-in capital 2,728,369 2,728,369
Accumulated comprehensive income;
unrealized gains on investments, net of deferred
taxes of $273,343 and $208,872, respectively 530,608 405,456
Retained earnings 11,489,369 11,268,274
----------- -----------
Total stockholders' equity 22,701,055 22,354,808
----------- -----------
Total liabilities, redeemable preferred
stock, and stockholders' equity $83,793,435 $89,930,625
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MEDICAL DEFENSE HOLDING CO.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
-----------------
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Premiums earned $2,273,171 $2,904,048 $4,559,674 $5,905,187
Investment income 1,202,647 1,329,718 2,455,569 2,647,102
Net realized investment gains 27,876 1,050 31,008 6,943
Other income 74 179 360 465
---------- ---------- ---------- ----------
Total revenues 3,503,768 4,234,995 7,046,611 8,559,697
---------- ---------- ---------- ----------
Expenses:
Losses and loss adjustment expenses 2,710,923 3,001,974 5,507,226 6,427,244
Amortization of policy acquisition costs 43,034 57,708
Other underwriting and insurance expenses 557,218 506,738 1,077,538 1,061,581
Investment expenses 54,724 53,931 121,339 120,951
Other operating expenses 49,458 52,502 126,176 99,804
---------- ---------- ---------- ----------
Total expenses 3,415,357 3,615,145 6,889,987 7,709,580
---------- ---------- ---------- ----------
Income before provision for
federal income taxes 88,411 619,850 156,624 850,117
---------- ---------- ---------- ----------
Provision for federal income taxes:
Current 0 152,000 0 114,000
Deferred (67,905) (152,000) (64,471) (114,000)
---------- ---------- ---------- ----------
Total tax benefit (67,905) 0 (64,471) 0
---------- ---------- ---------- ----------
Net income $ 156,316 $ 619,850 $ 221,095 $ 850,117
========== ========== ========== ==========
Earnings per common share and common
equivalent share (Note 9):
Basic earnings per common share $ 0.15 $ 0.61 $ 0.21 $ 0.83
========== ========== ========== ==========
Diluted earnings per common share and
common share equivalent $ 0.01 $ 0.03 $ 0.01 $ 0.04
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
MEDICAL DEFENSE HOLDING CO.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
________
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $156,316 $ 619,850 $221,095 $850,117
-------- ---------- -------- --------
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during the
period net of tax 150,215 1,028,116 145,617 (94,136)
Less: reclassification adjustment for gains included
in net income, net of tax (18,398) (693) (20,465) (4,582)
-------- ---------- -------- --------
Other comprehensive income (loss) 131,817 1,027,423 125,152 (98,718)
-------- ---------- -------- --------
Comprehensive income (loss) $288,133 $1,647,273 $346,247 $751,399
======== ========== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MEDICAL DEFENSE HOLDING CO.
CONSOLIDATED STATEMENTS OF CASH FLOW
for the six months ended June 30, 1998 and 1997
(Unaudited)
________
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------- -------------
Operating activities:
<S> <C> <C>
Net income $ 221,095 $ 850,117
Adjustments to reconcile net income to net cash provided
by operating activities:
Realized investment gains (31,008) (6,943)
Depreciation and amortization of deferred policy
acquisition costs 40,975 53,361
Provision for deferred income tax (64,471) (114,000)
Change in assets and liabilities:
Accrual and amortization of investment income (19,744) (12,887)
Premiums receivable from policyholders 378,871 562,507
Deferral of policy acquisition costs (41,018)
Reinsurance recoverable on loss & loss expenses:
Paid claims 2,798
Unpaid claims 580,000
Unpaid losses & loss adjustment expenses (3,592,571) (702,403)
Unearned premiums (1,763,359) (2,483,551)
Amounts withheld or retained by Company on account
of others 113,188 379,347
Income tax 2,221,197
Other assets (113,027) (155,684)
Other liabilities (1,240,695) (834,753)
------------ -----------
Net cash (used) provided by operating activities (6,070,746) 298,088
------------ -----------
Investing activities:
Proceeds from:
Fixed maturity investments - Sales 5,042,852 4,034,922
Fixed maturity investments - Maturities 7,533,912 3,394,688
Short-term investments 11,800,000 7,050,000
Purchase of investments:
Fixed maturity investments (7,267,410) (6,278,164)
Short-term investments (11,670,898) (8,553,570)
Purchases of property and equipment (net) (12,451) (9,015)
------------ -----------
Net cash provided (used) by investing activities 5,426,005 (361,139)
------------ -----------
Net (decrease) in cash and cash equivalents (644,741) (63,051)
Cash and cash equivalents, beginning of period 2,955,161 3,514,854
------------ -----------
Cash and cash equivalents, end of period $ 2,310,420 $ 3,451,803
============ ===========
Federal income taxes paid (refunded) $ 0 $(2,107,197)
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<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 June 30, 1998 and 1997 information contained in the following footnotes
is unaudited. It is management's opinion that the financial statements as
of June 30, 1998 and 1997 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 June 30, 1998 and
1997, 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.
<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 Principle 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.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 requires presentation
of comprehensive income in a full set of general-purpose financial
statements. The purpose of reporting comprehensive income is to
report a measure of all changes in equity of an enterprise that
result from recognized transactions and other economic events of
the period other than transactions with owners in their capacity
as owners. The Company has elected to report comprehensive income
in a separate statement of comprehensive income which begins with
net income. SFAS No. 130 is effective for financial statements
issued for periods beginning after December 15, 1997, including
interim periods. SFAS No. 130 requires restatement of all prior
periods comprehensive income information upon which the Company is
reporting.
C. Investments:
------------
SFAS 115 requires companies to classify debt and equity securities
into three categories. 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 reported as a separate component of
surplus as regards policyholders.
The accompanying consolidated GAAP financial statements of the
Company for the six months ended June 30, 1998 and the year ended
December 31, 1997 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 and included in comprehensive income.
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.
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
3. Summary of Significant Accounting Policies, continued:
------------------------------------------
D. Reinsurance:
------------
SFAS 113 requires certain changes in the manner in which insurance
enterprises account for and report on insurance contracts. Among
other things, SFAS 113 eliminates the practice by insurance
enterprises of reporting assets and liabilities related to
reinsurance contracts net of the effects of reinsurance. It
requires reinsurance receivables and prepaid reinsurance premiums
to be reported as assets.
E. Income Taxes:
-------------
SFAS 109 requires recognition of deferred tax liabilities and
assets for the expected future tax consequences 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, 26,700 shares of preferred stock were converted to 53,400 shares
of Class B common stock.
The Company has issued shares of $0.50 par value Class A common stock in
accordance with the agreement and plan of conversion dated November 29,
1994, in exchange for cash.
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
5. Investments, continued:
------------
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
--------- ---------- ---------- -----------
June 30, 1998
-------------
<S> <C> <C> <C> <C>
U.S. Treasury debt securities and obligations
of U.S. Government corporations and
agencies $33,914,539 $500,455 $ 38,072 $34,376,922
Corporate debt securities 2,921,353 73,592 2,994,945
Mortgage-backed securities 25,209,014 252,085 52,791 25,408,308
Other debt securities 6,071,921 72,933 5,449 6,139,405
----------- -------- -------- -----------
$68,116,827 $899,065 $ 96,312 $68,919,580
=========== ======== ======== ===========
December 31, 1997
-----------------
U.S. Treasury debt securities and obligations
of U.S. Government corporations and
agencies $36,435,311 $417,449 $ 85,125 $36,767,635
Corporate debt securities 5,126,604 81,809 2,942 5,205,471
Mortgage-backed securities 27,129,137 270,152 92,807 27,306,482
Other debt securities 4,786,852 40,073 14,676 4,812,249
----------- -------- -------- -----------
$73,477,904 $809,483 $195,550 $74,091,837
=========== ======== ======== ===========
</TABLE>
The change in net unrealized holding gain or loss on available for sale
securities, net of deferred taxes, for the six months ended June 30, 1998 and
the year ended December 31, 1997, is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C>
$125,152 $643,376
======== ========
</TABLE>
The amortized cost and estimated market value of debt securities by contractual
maturity are shown as follows:
<TABLE>
<CAPTION>
Amortized Estimated Market
Cost Value
--------- ----------------
June 30, 1998
-------------
<S> <C> <C>
Due in one year or less $ 5,115,963 $ 5,145,881
Due after one year through five years 35,314,602 35,612,006
Due after five years through ten years 19,519,020 19,902,943
Due after ten years 8,167,242 8,258,750
----------- -----------
$68,116,827 $68,919,580
=========== ===========
</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. Actual prepayment experience may differ from estimates.
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
5. Investments, continued:
-----------
Accrued investment income at June 30, 1998 and December 31, 1997, is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
U.S. Treasury securities $665,836 $705,909
Corporate bonds 77,350 114,506
Mortgage-backed securities 147,523 159,026
Other debt securities 26,664 19,392
-------- --------
$917,373 $998,833
======== ========
</TABLE>
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 June 30, 1998 and
December 31, 1997 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 June 30,
1998 and December 31, 1997.
To comply with the Missouri Department of Insurance, MDIC had a U.S.
Treasury Note with a par value of $850,000 as of June 30, 1998 and
December 31, 1997, 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 June 30, 1998
and December 31, 1997, the escrowed funds were invested in a $400,000
par value U.S. Treasury Note with a fair value of $407,436 and
$406,248, 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 six months ended June 30,
1998 and 1997:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
-------- --------
<S> <C> <C>
Investment income:
Fixed maturity investments $2,201,063 $2,454,884
Short-term investments 254,506 192,218
---------- ----------
Total investment income 2,455,569 2,647,102
Less investment expenses 121,339 120,951
---------- ----------
Net investment income $2,334,230 $2,526,151
========== ==========
</TABLE>
<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 six
months ended June 30, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
-------- --------
<S> <C> <C>
Sale of fixed maturity investments:
Realized gains $39,385 $12,514
Realized losses (8,377) (5,571)
------- -------
Net realized gains $31,008 $ 6,943
======= =======
</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>
June 30, June 30,
1998 1997
-------- --------
<S> <C> <C>
Net income for six months ended June 30 $ 71,219 $ 603,399
=========== ===========
Surplus as regards policyholders (including equity in MDS and
MDIC), June 30 $19,634,593 $21,453,743
=========== ===========
</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>
June 30, June 30,
1998 1997
-------- --------
<S> <C> <C>
Net income for six months ended June 30 $ 18,775 $ 32,827
========== ==========
Surplus as regards policyholders, June 30 $4,436,121 $4,365,525
========== ==========
</TABLE>
<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>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
------------- -------------
Income Effective Income Effective
Taxes Tax Rate Taxes Tax Rate
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Pre-tax income calculated at
statutory tax rates $ 53,252 34.00% $ 289,040 34.00%
Net operating loss carryforward 225,240 143.81 20,142 2.37
Change in valuation allowance (342,963) (218.97) (309,182) (36.37)
--------- ------- --------- ------
Provision for income taxes $ (64,471) (41.16)% $ 0 0%
========= ======= ========= ======
</TABLE>
The components of the net deferred tax asset at June 30, 1998 and December 31,
1997, are as follows:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
Deferred Deferred Deferred Deferred
Tax Asset Tax Liability Tax Asset Tax Liability
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Tax discounting of loss reserves $ 3,412,633 $ 3,571,217
Tax acceleration of unearned premium 292,131 412,039
Unrealized gain/loss $273,343 $208,872
----------- -------- ----------- --------
$ 3,704,764 $273,343 $ 3,983,256 $208,872
=========== ======== =========== ========
Net deferred federal income tax asset $ 3,431,421 $ 3,774,384
Valuation allowance (3,431,421) (3,774,384)
----------- -----------
Net realized deferred tax asset $ 0 $ 0
=========== ===========
</TABLE>
<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 two years in the future, using a more likely than
not standard.
The change in the valuation allowance is as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
-------- --------
<S> <C>
$(342,963) $(275,618)
========== =========
</TABLE>
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 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 net cost of unpaid losses and loss adjustment expenses; 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.
<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>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Balance at January 1 $58,654,324 $63,205,000
Less reinsurance recoverables 1,373,000 1,951,000
----------- -----------
Net balance at January 1 57,281,324 61,254,000
----------- -----------
Incurred related to:
Current year 4,955,701 13,505,569
Prior years 551,525 (204,632)
----------- -----------
Total incurred 5,507,226 13,300,937
----------- -----------
Paid related to:
Current year 28,179 265,569
Prior years 9,071,618 17,008,044
----------- -----------
Total paid 9,099,797 17,273,613
----------- -----------
Net balance at end of period 53,688,753 57,281,324
Plus reinsurance recoverables 1,373,000 1,373,000
----------- -----------
Balance at end of period $55,061,753 $58,654,324
=========== ===========
</TABLE>
9. Net Income Per Common Share:
---------------------------
In February of 1997, the Financial Accounting Standards Board published
Statement of Financial Accounting Standard No. 128, Earnings Per Share
("SFAS 128"), which requires certain changes in the reporting of earnings
per share. The Company was required to adopt SFAS 128 at December 31, 1997.
Additionally, the Company was required to restate interim 1997 earnings per
share data as previously presented.
SFAS 128 requires the computation of basic earnings per share ("EPS") and
diluted EPS. Basic EPS is computed by dividing income (loss) available to
common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS is computed by dividing income
(loss) available to shareholders by the weighted-average number of common
shares plus the weighted-average number of common share equivalents
outstanding for the period. Anti-dilutive amounts are not shown.
<PAGE>
MEDICAL DEFENSE HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
________
9. Net Income Per Common Share, continued:
---------------------------
All shares of the Company's preferred stock are convertible to common stock
at a ratio of two shares of common stock to one share of preferred stock,
and 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 diluted 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.
Net income per common share for the six months ended June 30, is as
follows:
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Net income $ 221,095 $ 850,117
=========== ===========
Weighted average common shares outstanding 1,050,501 1,028,862
Weighted average common stock options
expressed as common stock equivalents 14,854,917 18,408,442
----------- -----------
Weighted average common and
equivalent shares outstanding 15,905,418 19,437,304
=========== ===========
Basic earnings per share $ 0.21 $ 0.83
=========== ===========
Diluted earnings per share $ 0.01 $ 0.04
=========== ===========
</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.
Under employment agreements with certain officers and directors, payments
totaling approximately $500,000 are to be made if the number of insureds
fall below 913. At June 30, 1998, the number of insureds totaled
approximately 1,120. Such payments are forfeited in whole or part if the
individual does not remain employed for a period of 36 months following the
payment date.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 12 months,
MDIC has written a small amount of premium, less than $100,000, entirely in the
state of Kansas.
Results of Operations
MDHC recorded a 17.3% decrease in total revenues in the second quarter of 1998
and a 17.7% decrease in total revenue for the six months ended June 30, 1998,
compared with the same periods in the prior year. The decrease in total
revenues during the quarter and the six months ended June 30, 1998, was
primarily due to a decrease in premium revenue. This decrease in premiums
earned was due to a decline in premiums written during the first six months of
1998 of approximately $600,000 or 18% compared to the same time period in 1997.
This decrease in premiums written was the result of a decline in total
policyholders of approximately 4% which was concentrated in the higher premium
surgical classifications. 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. The Company's premium revenue has declined over the past several
periods although the Company has continued to intensify its services to its
existing policyholders and has worked aggressively to try to add new
policyholders. This continued decline in insureds has been primarily the result
of two factors. First, many Missouri physicians and surgeons have joined large
health care networks which have, in many cases, decided to self-insure their
professional liability risks and secondly, a number of the Company's
competitors have continued to engage in significant discounting in an effort to
acquire market share. The Company's philosophy continues to be to maintain
actuarially sound pricing integrity and not to engage in unwarranted price
discounting. As a result of this shrinking of the market and intense price
competition the Company continues to investigate various business alternatives
and opportunities in an effort to maximize shareholder value.
Investment income decreased 9.6% for the quarter ended June 30, 1998, and
decreased by 7.2% for the six months ended June 30, 1998, compared to the same
periods in 1997. This variation was primarily the result of a reduced level of
total invested assets and declines in market interest rates during the first six
months of 1998. Net realized investment gains were $27,876 in the second quarter
and $31,008 for the six months ended June 30, 1997, compared to $1,050 and
$6,943 in the same prior year periods, respectively.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
Results of Operations, continued
MDHC's total expenses for the second quarter and six-month period ended June 30,
1998 represented approximately 97% and 98% of total revenues, respectively,
compared to 85% and 90% during the same periods in 1997. While expenses as a
percentage of revenues increased compared to the same periods in 1997, actual
expenses for the quarter and the six months ended June 30, 1998, declined from
the previous year by 5.5% and 10.6%, respectively. The decrease in expenses
during the first six months of 1998, compared to the same period in 1997, is
almost entirely the result of decreases in loss and loss adjustment expenses,
which are directly related to the decline in the Company's earned premium.
Working with the Company's independent actuary, Company management has continued
to closely monitor its loss and loss adjustment expenses. The Company's most
recent actuarial study indicated very slight improvement in projected ultimate
loss and loss adjustment expenses for accident years prior to 1998, which is
reflected in the Company's results as of June 30, 1998. The Company continues
to monitor the level of claim severity and to seek input from actuaries as
appropriate. There can be no assurance, however, that the estimates of the
actuaries will not have to be revised, or that the Company's reserve for loss
and loss adjustment expense will not differ from the total of amounts ultimately
paid out. Other operating expenses for the quarter and six months ended June 30,
1998 were generally consistent, in total, with the same periods in 1997,
however, as a percentage of total revenue these expenses were up approximately
3% for both the quarter and the six months ended June 30, 1998, compared to the
same periods in 1997. This increase in operating expenses as a percentage of
total revenue is due to the decline in premiums earned discussed earlier. As a
result of the decline in total revenue discussed above, the Company's net income
declined to $156,316 and $221,095 for the quarter and six months ended June 30,
1998, compared to $619,850 and $850,117 for the same periods in 1997.
Financial Condition
MDHC's total consolidated assets were $83,793,435 as of June 30, 1998 consisting
primarily of cash and investments which comprised approximately 94% of total
assets. Approximately 83% of MDHC's total assets consisted of cash, U.S.
Treasury bonds, U.S. government agency bonds, and other investments either
collateralized or guaranteed by U.S. government agencies or securities. MDHC's
total assets declined approximately $6.1 million during the six months ended
June 30, 1998, which was due primarily to claim related payments in excess of
claim related incurred liabilities of approximately $3.6 million, payment of
other liabilities of over $1.2 million, a decline in premiums written of
approximately $0.6 million, and a decline in premiums receivable of
approximately $0.4 million. 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. The composition of
MDHC's total investments is not anticipated to change substantially in the near
future.
MDHC's total consolidated liabilities as of June 30, 1998, were $61,092,380
which was a decline of approximately 9.6% from December 31, 1997. This decline
was the result of a decline in unearned premiums of $1.8 million, the decrease
in unpaid loss and loss adjustment expenses noted above, and the reduction of
other liabilities also discussed earlier. Approximately 90% of MDHC's
consolidated total liabilities at June 30, 1998, relate to unpaid loss and loss
adjustment expenses.
Stockholders' equity increased 1.5% as of June 30, 1998, compared with the prior
year-end. This increase was primarily the result of net income for the six
months ended June 30, 1998 of $221,095 and a slight increase in the net
unrealized gain on the Company's investment portfolio which was $125,152.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
Liquidity and Capital Resources
MDHC's cash flow is generated from its operations and investment portfolio. Net
cash provided by operating activities for the six months ended June 30, 1998
decreased $6,368,834 from the comparable period in 1997. This decrease in cash
provided by operating activities was caused primarily by a decrease in amounts
received relating to current federal income taxes of approximately $2.1 million,
a net decrease in unpaid loss and loss adjustment expenses of approximately $3.6
million, a reduction in net income of approximately $0.6 million for the six
months ended June 30, 1998 as compared to the same period in 1997, and other
minor variations in cash flow between the comparable periods.
MDHC's investing activities resulted in an increase in cash provided by
investing activities of $5,426,005 at June 30, 1998 compared to a decrease in
cash provided by investing activities of $361,139 for the same period in 1997.
This variation was due to the net proceeds from fixed maturity investments of
$5.3 million for the 1998 period which were utilized to fund operating
activities, compared to net proceeds of fixed maturity investments for the six
months ended June 30, 1997 of approximately $1.2 million. In addition, there
were net proceeds from short-term investments of $0.1 million for the 1998
period, also utilized to fund operating activities, whereas net purchases of
short-term investments for the six months ended June 30, 1997 totaled $1.5
million.
Under employment agreements with certain officers and directors, payments
totaling approximately $500,000 are to be made if the number of insureds falls
below 913. Such payments are forfeited in whole or in part if the individual
does not remain employed for a period of 36 months following the payment date.
At June 30, 1998, the number of insureds was approximately 1,120. As of July
31, 1998, the number of insureds was approximately 1,100.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<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.
MDHC held the annual meeting of its shareholders at 6:00 p.m. on Tuesday,
April 21, 1998.
The following persons were re-elected as directors of MDHC:
Ronald G. Benson, M.D.
David W. Brown, M.D.
Geri H. Morrison
Gary L. Robinson, M.D.
John J. Stamatis, M.D.
Arlen D. Winsky, M.D.
Holders of 999,998 shares of Class A Common Stock voted in favor of the
election of each such director. No director received any votes against,
abstentions or broker non-votes.
The shareholders also ratified the selection of Coopers & Lybrand, L.L.P.
as outside auditors for MDHC and its subsidiaries for 1998. Holders of 999,998
shares of Class A Common Stock voted in favor of the proposal, and the proposal
received no abstentions, broker non-votes or votes against.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
See accompanying Exhibit Index incorporated by reference.
(b) Reports on Form 8-K.
None.
<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.
Medical Defense Holding Co.
(Registrant)
August 5, 1998 /s/ Ronald G. Benson
- ----------------------- ---------------------------------
Date Ronald G. Benson
President, CEO, and Chairman
of the Board (principal
executive officer); Director
August 5, 1998 /s/ Samuel J. Pippin
- ----------------------- ---------------------------------
Date Samuel J. Pippin
Director of Accounting and
Finance (principal financial
and accounting officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
--- ----------- ---
<C> <S> <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 -- 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.)...............................
10.12 -- 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 Annual Report on Form 10-K for the year ended December 31, 1995 (file
#0-28214) and hereby incorporated by reference.)..........................................
10.13 -- Medical Defense Services Corp. Executive Compensation Plan II (Filed as Exhibit 10.14 to
the Registrant's 1997 Annual Report on Form 10-K (file #0-28214) 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
10-Q.)....................................................................................
21.1 -- Subsidiaries of the registrant (Filed as Exhibit 21.1 to the Registrant's 1997 Annual
Report on Form 10-K (file #0-28214) and hereby incorporated by reference.)................
27 -- Financial Data Schedule...................................................................
</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 six months ended June 30, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 68,919,580
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 76,217,898
<CASH> 2,310,420
<RECOVER-REINSURE> 1,373,000
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 83,793,435
<POLICY-LOSSES> 55,061,753
<UNEARNED-PREMIUMS> 4,296,039
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 365,617
<NOTES-PAYABLE> 0
<COMMON> 526,699
0
7,426,010
<OTHER-SE> 14,748,346
<TOTAL-LIABILITY-AND-EQUITY> 83,793,435
4,559,674
<INVESTMENT-INCOME> 2,455,569
<INVESTMENT-GAINS> 31,008
<OTHER-INCOME> 360
<BENEFITS> 5,507,226
<UNDERWRITING-AMORTIZATION> 57,708
<UNDERWRITING-OTHER> 1,077,538
<INCOME-PRETAX> 156,624
<INCOME-TAX> (64,471)
<INCOME-CONTINUING> 221,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 221,095
<EPS-PRIMARY> .21
<EPS-DILUTED> .01
<RESERVE-OPEN> 58,654,324
<PROVISION-CURRENT> 4,955,701
<PROVISION-PRIOR> 551,525
<PAYMENTS-CURRENT> 28,179
<PAYMENTS-PRIOR> 9,071,618
<RESERVE-CLOSE> 55,061,753
<CUMULATIVE-DEFICIENCY> 551,525
</TABLE>
