UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark
One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from _______ to
________
Commission file number 33-94226-A
WMA INTERNATIONAL CORPORATION
(Name of small business issuer in its charter)
Delaware 58-2179041
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5555 Triangle Parkway, N.W., Second Floor, Norcross,
Georgia 30092
(Address of principal executive offices)
Issuer's telephone number: (770) 453-9300
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and
reports required to be filed by Section 12, 13, or 15(d)
of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
Issuer's classes of common equity, as of the latest
practicable date:
As of March 31, 1997, there were 2,411,742 shares
of common stock (.001 par value) outstanding, and 88,258
warrants had been issued, each warrant representing the
right to purchase a share of common stock for $10.
Transitional Small Business Disclosure Format (Check
one): Yes___ No X
Table of Contents
PART I
Page No.
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 7
PART II
Item 1 Legal Proceedings 11
Item 2 Changes in Securities 11
Item 3 Defaults Upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Security Holders11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 13
PART I
Item 1. Financial Statements.
The March 31, 1997 Financial Statements follow on the next page.
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<TABLE>
<CAPTION>
WMA INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
March 31, 1997
(Unaudited)
Three Months
Three Months
Ended Ended
March 31, 1997
March 31, 1996
Assets
<S>
<C> <C>
Cash and cash equivalents $ 2,174,115 $ 5,959,738
Fixed maturity securities - available for sale 16,364,373
7,263,005
Equity securities - available for sale 492,583 ---
Investment income due and accrued 244,955 ---
Prepaid expenses 43,889 10,574
Deferred tax assets 105,814 10,893
Deferred offering costs --- 435,082
Deferred acquisition costs 1,033,939 ---
Deferred organization costs, net 152,068 106,173
Other receivables 36,090 ---
Total assets $ 20,647,826 $ 13,785,465
Liabilities and Stockholders' Equity
Liabilities:
Stock subscription deposits --- 5,604,239
Future policy benefits 545,511 ---
Reinsurance balances payable 80,307 ---
Accounts payable 71,810 58,963
Accrued interest expense --- 12,935
Accrued expenses 224,679 ---
Due to stockholders --- ---
Notes payable --- 747,329
Deferred tax liability 253,235 ---
Total liabilities 1,175,542 6,423,466
Stockholders' equity:
Common stock, par value $.001,
10,000,000 authorized; 2,411,742 and 1,250,000
shares issued in 1997 and 1996, respectively 2,412
1,250
Additional paid-in capital 19,348,481 7,748,750
Unrealized loss on securities available for
sale, net of taxes (395,773) ---
Accumulated equity (deficit) 517,164 (388,001)
Total stockholders' equity 19,472,284 7,361,999
Total liabilities and stockholders' equity $20,647,826
$13,785,465
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
WMA INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months
Three Months
Ended Ended
March 31, 1997
March 31, 1996
<S>
<C> <C>
Revenues:
Gross premiums $ 1,067,902 $ ---
Net investment income 256,714 54,941
Total revenue $ 1,324,616 $ 54,941
Benefits and expenses:
Benefits, claims and settlement $ 393,588 ---
Reinsurance premium allowances, net 303,442 ---
Professional fees 43,233 51,789
Management fees 36,563 ---
Interest expense --- 16,317
Other expense 12,354 31,108
Amortization of organization costs 9,109 ---
Amortization of deferred acquisition costs (1,657) ---
Total benefits and expenses 796,632 99,214
Net income (loss) before income taxes 527,984 (44,273)
Income tax benefit (expense) (205,152) 10,893
Net income (loss) after income taxes $ 322,832 $ (33,380)
See accompanying notes to consolidated financial statements. </TABLE>
<TABLE>
<CAPTION>
WMA INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 1997March 31, 1996
<S>
<C> <C>
Cash flows from operating activities:
Net income (loss) $ 322,832 $
(33,380)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operations to net cash:
Amortization 7,452 70,184
Deferred tax expense 205,152 (10,893)
Change in:
Investment income due and accrued (63,691)
---
Reinsurance receivables 30,396 ---
Deferred acquisition costs (299,953) ---
Prepaid expenses (17,812) (10,574)
Deferred tax asset (105,814) ---
Other assets (35,306) ---
Future policy benefits (68,966) ---
Reinsurance balances payable 80,307 ---
Accrued expenses (16,054) ---
Accrued interest --- (60)
Accounts payable 24,885 (65,913)
Net cash provided by (used in) operating activities 63,428
(50,636)
Cash flows from investing activities:
Purchase of available-for-sale securities (1,944,452)
(7,263,005)
Proceeds from available-for-sale sales of securities 974,858
---
Net cash used in investing activities (969,594)
7,263,005)
Cash flows from financing activities:
Issuance of common stock and warrants 1,061,920 7,500,000
Repayments of borrowings under note payable ---
(1,350)
Payments for offering and organization costs ---
(136,544)
Increase in due to stockholders 38,160 5,604,239
Net cash provided by financing activities 1,100,080
12,966,345
Net increase in cash and cash equivalents 193,914
5,652,704
Cash and cash equivalents at beginning of period 1,980,201
307,034
Cash and cash equivalents at end of period 2,174,115 $
5,959,738
Supplemental disclosure of cash flow
information - interest paid $ --- $ 16,377
See accompanying notes to consolidated financial statements.
</TABLE>
WMA INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1997
(1) Basis of Presentation
The accompanying unaudited consolidated financial
statements have been prepared in accordance with
generally accepted accounting principles for
interim financial information and with the
instructions for Form 10-QSB of Regulation S-B.
Accordingly, they do not include all of the
information and footnotes required by generally
accepted accounting principles for complete
financial statements. In the opinion of
management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included.
(2) Stock Subscriptions
As of March 31, 1997 the Company has received
$19,617,420 for purchases of common stock and
warrants pursuant to an offering for which the
registration statement became effective December
22, 1995. The Company has accepted $19,117,420 for
purchases of common stock representing 1,911,742
shares of common stock issued pursuant to the
offering and $500,000 for purchases of 500,000
warrants, each representing the right to purchase a
share of common stock for $10.
(3) Deferred Tax
Deferred income tax liabilities and related
expenses are determined in accordance with FAS 109
using an effective federal tax rate of 34%. FAS
109 specifically excludes recognition of the "small
life insurance company deduction" available under
Section 806 of the Internal Revenue Code for
qualifying life insurance companies. This special
deduction, for which management believes the
Company will qualify for a number of years, can
reduce the effect federal income tax rate from 34%
to less than 20% depending upon the amount of
taxable income. Consequently, the effective tax
rate on the Company's earnings may ultimately prove
to be less than the deferred income tax liabilities
and related expenses determined under FAS 109, at
March 31, 1997.
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Item 2. Management's Discussion and Analysis or Plan of
Operation.
Overview of Business Operations
WMA International Corporation (the "Company") was
formed March 9, 1995 as a for-profit corporation
organized under Delaware law. The Company is a holding
company, owning 100% of the outstanding stock of WMA Life
Holding, Ltd., a Bermuda for-profit corporation formed
August 2, 1995 ("Holding") and 100% of WMA Life Insurance
Company Limited, a fully licensed for-profit Bermuda life
insurance corporation formed August 2, 1995 ("WMA Life").
WMA Life, a life reinsurance company, is presently
engaged in providing reinsurance to certain insurance
companies with respect to insurance policies sold by
World Marketing Alliance, Inc. ("WMA Agency"), Georgia
corporation controlled by S. Hubert Humphrey, Jr., the
largest shareholder of the Company. Holding presently has
no active business operations. The Company, Holding and
WMA Life are sometimes referred herein collectively as
the "Companies."
During the first quarter of 1997, the Company has been
engaged primarily in providing reinsurance, through WMA
Life, and in negotiating the terms of additional
reinsurance agreements into which the Company expects WMA
Life to enter during 1997.
WMA Life has presently in effect two reinsurance
indemnity agreements for variable universal life
insurance products previously and currently being sold by
WMA Agency and issued or anticipated to be issued by
Western Reserve Life Assurance Co. of Ohio ("WRL") and
Kemper Investors Life Insurance Company ("KILICO"). Both
such reinsurance agreements provide for the reinsurance
of a portion of all individual Variable Universal Life
policies sold by WMA Agency on a monthly renewable term
basis (a variation of Yearly Renewable Term). As of
March 31, 1997, premiums from reinsurance of WRL life
insurance policies represented the majority share of WMA
Life's business revenues, and this reliance on WRL is
anticipated to continue for the foreseeable future,
particularly in light of the substantial volume of WRL
policies that are sold by WMA Agency. Correspondingly,
WMA Life has become a material reinsurer of WRL. The
Company also anticipates WMA Life will become a material
reinsurer of Kemper Investors Life Insurance Company.
As of March 31, 1997, WMA Life's business inforce
with respect to the reinsurance agreements with WRL and
KILICO constituted 105,493 policies with 2,982,726,588 of
reinsured death benefits. Associated with the
reinsurance agreements with WRL and KILICO, the income
and balance sheet statements as of March 31, 1997,
reflect premiums, benefits, claims, settlement expenses,
reserves and deferred acquisition costs. Such entries
are normal within the context of an insurance enterprise.
The deferred acquisition costs reflect expenses and
reinsurance premium allowances associated with the
initial transaction and issuance of new business.
Deferred acquisition costs reflect expenses incurred that
are directly associated with the acquisition of the
reinsured business. These expenses include actuarial,
legal and accounting fees, salaries and expenses, as well
as first year reinsurance allowances in excess of renewal
allowances.
Reported claims, for the first quarter of 1997, and
pending claims, as of year-end 1996, totaled $514,500 and
$380,000, respectively. Ensuing benefits paid totaled
$460,129 thereby settling $524,500 of claims. Benefits,
Claims and Settlement Expenses in the Income Statement
reflect these amounts, including an increase in reserve
for future benefits reinsured. The outstanding claims as
of March 31, 1997 were $370,000. The total reserve for
future benefits and claims as of March 31, 1997 is
$545,511. The reserve was determined using principles
consistent with those prescribed by FAS 60. (Note: The
corresponding U.S. Statutory Reserve credit taken by WRL
and KILICO is $766,958. The U.S. Statutory Reserve
prescribed by the National Association of Insurance
Commissioners ("NAIC") is determined using interest and
mortality assumptions typically much more conservative
than experience otherwise expected by the industry.)
During the first quarter of 1997, American Skandia
Life Assurance Corporation ("ASLAC") agreed in principle
to enter into a reinsurance agreement with WMA Life
providing for the reinsurance of "Imperium" Variable
Annuity policies sold by WMA Agency, commencing as of
January 1, 1997. The Imperium policies are proprietary
products exclusively distributed and sold by WMA Agency.
The reinsurance under such agreement will be conducted
on a modified coinsurance basis. The Company expects to
execute a written agreement with ASLAC during the second
quarter of 1997.
During the first quarter WRL agreed, in principal, with
WMA Life to provide recompense because of delays
associated with the introduction of a new VUL product
encompassed by existing reinsurance arrangements. WMA
Life anticipates an agreement enumerating the recompense
during the second quarter of 1997.
The Company anticipates that WMA Life will enter into
additional reinsurance agreements in 1997 with The
Midland Life Insurance Company, WRL, KILICO and others
with respect to policies sold by WMA Agency. The Company
anticipates that WMA Life will reinsure different types
of life insurance products of these companies, including
variable universal life, variable annuities, term life,
universal life and other insurance products. There are
no established criteria, parameters or limitations with
respect to the nature and amount of additional
reinsurance to be written by WMA Life. The Company has,
and will continue to have, complete discretion in
determining the nature and amount of additional
reinsurance to be written by WMA Life.
Under WMA Life's existing and proposed reinsurance
Agreements, the day-to-day administration of the business
reinsured and related transactions are and will be
managed by the ceding insurance companies pursuant to an
administrative procedure called self-administration.
This procedure requires the insurance companies to
maintain individual policy records for each policy ceded,
premium accounting, allowances and reserve reports. The
Company relies on the insurance companies to provide it
with all information necessary for processing the
reinsurance. The ceding insurance companies also process
all related claims and other policy transactions. As a
result, WMA Life does not participate in any of the
direct administration of the reinsured policies. These
reinsurance agreements also may provide that an amount
remain on deposit with the ceding insurance company until
such time as WMA Life secures a Letter of Credit (LOC)
for the benefit of the ceding company. This procedure,
often referred to as "funds withheld reinsurance" is a
customary practice within the reinsurance industry.
Typically, the amount required to remain on deposit or
the LOC will not materially exceed the U.S. Statutory
Reserve as prescribed by the NAIC. WMA Life has
previously secured a $1,000,000 LOC in favor of WRL. WMA
Life will monitor continuing security requirements and
will adjust the LOC amounts accordingly. If determined
to be necessary, WMA Life will develop facilities for
future LOC s and trust arrangements in support of
additional reinsurance agreements.
The Companies' investments consist of various
investment assets selected with the objective of
maximizing investment returns consistent with appropriate
safety, diversification, tax and regulatory
considerations, and to provide sufficient liquidity to
enable WMA Life to meet its obligations as a reinsurance
company on a timely basis (the "Investment Standard").
The Companies' investment practices are governed by the
guidelines established and approved by its respective
Board of Directors. Bermuda law provides that there are
no restrictions on investments provided that investments
are made for the potential benefit of WMA Life. The
Companies have developed specific investment guidelines,
subject to change at the discretion of the Companies'
respective Board of Directors, in respect of the
management of its investment portfolio. Although these
guidelines stress diversification of risks, conservation
of principal and liquidity, investments are subject to
market-wide risks and fluctuations, as well as to risks
inherent in particular securities.
The Company and WMA Life have entered into separate
investment management agreements with Falcon Asset
Management, Inc. ("Falcon"), an investment advisor and
manager based in Baltimore, Maryland. Pursuant to these
agreements, Falcon has the responsibility of managing the
Company's and WMA Life s investment assets in accordance
with specific investment guidelines. The Company's and
WMA Life's investment assets managed by Falcon are held
in custodial accounts with IBJ Schroder Bank & Trust
Company ("Schroder") in New York, New York pursuant to
Custody Agreements.
During the first quarter of 1997, the Company completed
the acceptance of subscriptions for shares ("Shares") of
its common stock and warrants ("Warrants") pursuant to an
registration statement (the "Registration
Statement")(Commission file number 33-94226-A) (the
"Offering") which became effective December 22, 1995. As
of March 31, 1997, the Company has sold 1,911,742 Shares
($19,117,420) and 500,000 Warrants ($500,000) pursuant to
the Offering. 411,742 Warrants have been exercised.
Effective January 1, 1997 the Company agreed to pay a
management fee of $120,000 per year to WMA Management
Services, Inc. for management services, which amount
includes the cost of Edward F. McKernan's services
rendered on behalf of the Company. The cost of Mr.
McKernan's services incurred by WMA Agency was previously
charged directly by WMA Agency to the Company, which
arrangement has been terminated.
Business Strategy
The financial goal of the Company is to obtain for the
Company (and not the stockholders) an after-tax return on
equity (net capital invested by stockholders) of not less
than an averaged ten percent (10%) after-tax annualized
return after 10 years. Although the Company believes
that it has a reasonable basis to expect that such a
return is feasible, no assurance can be given that any
return can be achieved. Furthermore, any return is
dependent upon the volume of insurance policies sold by
WMA Agency for which WMA Life acts as reinsurer.
Moreover, there are not established criteria, parameters
or limitations with respect to the nature and amount of
reinsurance to be written by WMA Life and the Company
will have complete discretion in determining the nature
and amount of reinsurance to be written by WMA Life.
In light of the Company's affiliation with WMA Agency
and WMA Agency's existing relationship with the National
Life Companies, the Company has developed a business
strategy relating to its reinsurance agreements. The
principal elements of such business strategy are:
To leverage the negotiating strength with the ceding
life insurance companies provided by the Company's
affiliation with WMA Agency;
To create a strong bond among the Company, WMA Agency
and the WMA Agency independent sales agents ("WMA Sales
Agents") by providing the WMA Sales Agents the
possibility, by investing in the Company's Shares, of
participating in reinsurance profits generated by the
life insurance policies sold by WMA Sales Agents; and
To create favorable reinsurance results on the life
insurance policies sold by WMA Sales Agents since it is
anticipated that, when WMA Sales Agents have an
investment in the reinsurance agreements through
investing in the Company, WMA Sales Agents will have more
of an incentive to place quality business through WMA
Agency, which business may become the subject of the
reinsurance agreements.
Business Plan
The Company's business plan for the remainder of 1997
consists of: the Company's contribution, or otherwise
making available the contribution, of capital to WMA Life
in an amount sufficient to support operations and growth
of WMA Life's reinsurance business; causing WMA Life to
maintain an adequate operating expense reserve;
continuing to cause WMA Life to acquire an investment
portfolio to provide sufficient liquid assets in order to
meet potential claims pursuant to its reinsurance
agreements; monitoring WMA Life's Investment Manager,
Falcon Asset Management, Inc.; managing the WRL, KILICO
and ASLAC reinsurance agreements; the Company's continued
negotiation and completion of additional reinsurance
agreements; causing WMA Life to continue operating as a
reinsurance company; and to invest cash balances not
required by WMA Life to support existing reinsurance
obligations in investments in accordance with WMA Life's
investment guidelines. The Company believes that the
Companies' present capital position will be adequate for
WMA Life to sustain operations during the next twelve
months. It does anticipate, however, initiating efforts
to establish a line of credit with a third party lending
source which could be drawn upon as necessary to fund
payments WMA Life is required to make to acquire new
reinsurance in order to avoid liquidating investments at
a time when market values of such investments may have
decreased.
The Company expects its operating expenses over the
next twelve months to consist of payment of fees relating
to management, accounting, consulting and actuarial
services rendered; payment of expenses related to
compliance with corporate and tax matters, investment
management fees, custodial account fees and other
incidental administrative expenses. Holding's operating
expenses are expected to be nominal and consist
principally of accounting and administrative costs of
reporting to regulatory authorities, and fees for
business qualification. WMA Life's expenses during the
next twelve months are expected to consist of costs
associated with its operations as a reinsurance company,
which costs include expense allowances payable to ceding
insurance companies, payment of accounting fees, legal
fees, investment management fees, management service
fees, custodial account fees, and fees and expenses for
regulatory compliance in Bermuda.
None of the Companies expect to purchase or sell any
significant equipment nor expect that there will be any
significant change in the number of employees.
PART II
Item 1. Legal Proceedings.
At March 31, 1997, neither the Company, Holding nor WMA
Life was involved in any legal proceedings.
Item 2. Changes in Securities.
There have been no changes or modifications to the
rights of the holders of any class of registered
securities.
Item 3. Defaults Upon Senior Securities.
There have been no defaults in the payment of principal
or interest of any indebtedness of the issuer.
Item 4. Submission of Matters to a Vote of Security
Holders.
No matters were submitted during the period covered by
this report to a vote of security holders through the
solicitation of proxies or otherwise. No annual report
or proxy materials have been sent to security holders.
Item 5. Other Information.
None other than as previously stated herein.
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Item 6. Exhibits and Reports on Form 8-K.
No reports were required to be filed on Form 8-K.
Exhibit
Number Description of Exhibit
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Shareholders' Agreement (3)
4.2 Specimen Stock Certificate (2)
4.3 Subscription Agreement (3)
4.4 Revised Specimen Warrant (4)
4.5 Loan Agreement between WMA Agency and Offering
Subscribers (3)
10.1 Form of Escrow Agreement between Registrant
and Fidelity National Bank as Escrow Agent.(2)
10.2 Form of Promotional Share Escrow Agreement (3)
10.3 Loan Agreement with Money Services, Inc. (3)
10.4 Loan Agreement between Money Services, Inc.
and WMA Agency (3)
10.5 Management Agreement with WMA Management (3)
16.1 Letter on change in Certifying Accountant (5)
23.2 Consent of KPMG Peat Marwick (6)
[FOOTNOTES ON NEXT PAGE]
FOOTNOTES TO PRECEDING PAGE:
(1) Filed On June 28, 1995 as part of the Registration
Statement and incorporated herein by reference
pursuant to Rule 12b-23.
(2) Filed On September 22, 1995 as part of the
Registration Statement and incorporated herein by
reference pursuant to Rule 12b-23.
(3) Filed on November 17, 1995 as part of the
Registration Statement and incorporated herein by
reference pursuant to Rule 12b-23.
(4) Filed on December 20, 1995 as part of the
Registration Statement and incorporated herein by
reference pursuant to Rule 12b-23.
(5) Filed on December 21, 1995 as part of the
Registration Statement and incorporated herein by
reference pursuant to Rule 12b-23.
(6) Filed on March 31, 1997 as part of the Company's
1996 10-KSB.
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SIGNATURES
In accordance with the requirements of the Exchange
Act, the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
(Registrant) WMA International Corporation
By (Signature/Title) s/Thomas W. Montgomery (SEAL)
Date: May 15, 1997
Thomas W. Montgomery, Executive Vice
President, Chief Financial Officer,
Secretary/Treasurer, and Director
