Management believes that these facilities are adequate for the current level of operations.
The following selected financial data for each of the five years ended December 31, 1995 is derived from the audited consolidated financial statements of the Company. The selected data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and accompanying notes included elsewhere herein.
Management's Discussion and Analysis of Financial Condition and Results of Operations
The selected financial data and consolidated financial statements and the related notes thereto should be read in conjunction with the following discussion as they contain important information for evaluation of the Company's financial condition and operating results.
The Company has also revised its strategic direction. The new management of the Company generated a transitional operating plan which focuses on the Company's core operations (defined to be fee income producing activities) while reducing the amount of underwriting risk to which the Company has historically been exposed. The Company ceased to underwrite commercial lines of business in 1993, and entered into a General Agency Agreement to market the business for an unaffiliated issuing company.
During 1994, the Company elected to commute its workers compensation loss reserves associated with participation in the National Council on Compensation Insurance. In addition, a long standing dispute regarding the 1985 sale of a subsidiary was settled during the year. These two transactions resulted in an increase in earnings of $3.3 million. However, the transactions also generated a cash outflow of $25.4 million and necessitated the unplanned sale of secur- ities at a loss of $2.6 million.
The Company also engaged additional actuarial consultants at the conclusion of 1994. Based upon this actuarial input, loss and adjusting expense reserves were increased significantly during the fourth quarter. Largely as a consequence of this reserve strengthening, the Company incurred a net loss of $19.1 million for the 1994 year. The portion of incurred losses and loss adjusting expenses that related to claims occurring in prior years amounted to $17.0 million. Absent this development on prior year reserves and the realized capital losses of $6.3 million, the Company would have been profitable for the 1994 year. The significant reserve strengthening resulted in a statutory deficit for one of the insurance company subsidiaries. The Company suspended underwriting new and renewal personal lines of business in the second quarter of 1995, and does not anticipate resuming such activities until sufficient capital has been raised to support these risks, and strategic plans are in place to underwrite profitably.
During 1995, the Company replaced its Chief Executive Officer and Chief Financial Officer. The Company achieved its first year of operating profits of the current decade, and significantly reduced the cash outflow from operations. The new management undertook significant cost reductions, including a 35% reduction in work force during 1995. The 1995 profit was largely a result of this expense control and the lack of significant loss reserve development since the 1994 reserve strengthening.
The decrease in operating profit of $4.5 million in 1995 over 1994 is due to the decrease in revenues previously mentioned, partially offset by expenses related to servicing the contracts. The increase in operating profit of $5.8 million in 1994 over 1993 is primarily attributable to two factors: 1) a reduction in allocated loss adjustment expenses associated with the South Carolina Reinsur- ance Facility (the "Facility"), and 2) an increase in the component of the Facility fee based upon claim payments, which rose substantially during 1994.
A.M. Best, the industry's leading rating authority, last assigned the Company a group rating of NA-9 ("Not Assigned-Company Request"). A.M. Best is an independent company which rates insurance companies based on their judgement of factors related to the ability to meet policyholder and other contractual obligations. The rating is not directed toward the protection of investors. A low rating would not directly affect the Company's servicing carrier or MGA operations. The Company believes the lack of a rating does not have a material impact on its personal lines business as this business can be maintained because of the quality of its agency relationships and because these lines are generally not as sensitive to the rating of the insuring company as for commercial line business.
The percentages for Tennessee in 1995 and for all other states in 1994 are negative due to the company's withdrawal from various states during the years presented, resulting in return premium volume. The percentage for Florida in 1993 is negative because the Company withdrew from that state by doing mid-term cancellations of policies in force, resulting in negative premiums written for the year.
Reserve deficiencies from prior years adversely affected 1995 by $3.4 million, 1994 by $17.0 million, and 1993 by $10.5 million. Such adverse reserve development is fully discussed following the tabular ten-year period analysis presented later in the reserves section.
Results for 1993 were impacted by losses of $4.2 million from the first quarter "Winter Storm of the Century," as well as a $1.0 million reduction due to a rate rollback in the state of North Carolina. Additionally in 1993, the Company began its withdrawal from the workers' compensation market in all states. The workers' compensation business had already been substantially downsized. As a result of participation in the National Workers Compensation Reinsurance Pool, the Company had recorded substantial losses for its allocable share of the business placed in this residual market. The total loss to the Company relative to this residual market was $2.8 million in 1993. During 1994, this residual market generated a profit of $4.9 million, largely due to a favorable impact of $6.1 million upon the commutation of outstanding losses.
Loss reserves are estimates at a given point in time of the amount the insurer expects to pay claimants plus investigation and litigation costs, based on facts and circumstances then known. It can be expected that the ultimate liability in each case will differ from such estimates. During the loss settlement period, additional facts regarding individual claims may become known and, consequently, it becomes necessary to refine and adjust the estimates of liability.
The liability for losses on direct business is determined using case-basis evaluations and statistical projections. The liabilities determined under these procedures are reduced, for GAAP purposes, by estimated amounts to be received through salvage and subrogation. The resulting liabilities represent the Company's estimate of the ultimate net cost of all unpaid losses and LAE incurred through December 31 of each year. These estimates are subject to the effects of changing trends in future claims frequency and/or severity. These estimates are continually reviewed and, as experience develops and new informa- tion becomes known, the liability is adjusted as necessary.
As reflected in the preceding table, each year was affected by reserves from prior years having been deficient in those earlier periods. The impact of this adverse development was $3.4 million in 1995, $17.0 million in 1994, and $10.5 million in 1993. Adverse reserve development will be fully discussed following the tabular ten-year period analysis presented later in this section.
The difference between the year-end net liability for losses and LAE reported in the accompanying consolidated financial statements in accordance with GAAP and that in accordance with SAP was as follows:
The following analysis reflects loss and LAE development on a SAP basis, net of ceded reinsurance recoverable, for a ten-year period for retained business only:
The next portion of the preceding table reflects the cumulative payments made for each of the indicated years as they have developed through time. This table has been adjusted for a modification made to 1994 paid losses on a GAAP basis, not recorded for statutory net losses incurred. On a statutory basis, the modification is a reclassification only and has no effect on income. Additionally, a ceded reinsurance commutation during 1993 for $43 million re- duced the gross asset for reinsurance recoverable on losses and loss adjustment expenses. Since investments were increased $42.9 million, total assets were basically unchanged. Under the gross method of reporting the liability for losses and LAE, the commutation had no effect on liabilities. The 1993 expense for losses and LAE was also unaffected, because the reduction in the asset for reinsurance recoverable served to increase the expense, while the securities received served to decrease the expense. For these same reasons, the re- estimated liability shown on the ten-year development table was also not affected. The 1993 impact on the cumulative liability paid on the ten-year development table, which was reduced by the value of the securities received, was as follows (in millions of dollars):
In evaluating this information, it should be noted each amount includes the effects of all changes in amounts for prior periods. This table does not pre- sent accident or policy year development data, which readers may be more accustomed to analyzing. Conditions and trends that have affected development of the liability in the past may not necessarily occur in the future. Accor- dingly, it may not be appropriate to extrapolate future redundancies or defi- ciencies based on this table.
After the Company experienced adverse loss reserve development in 1990 and 1991 on its southeastern business, it was determined a significant reserve addition was necessary to bring current and prior year reserves to a level to avoid or minimize recurrence of adverse development. Accordingly, in the fourth quarter of 1991 the Company added $18.4 million to its reserves. The addition was determined through a comprehensive actuarial review of the Company's direct and net business.
The majority of the adverse reserve development in 1989 was related to accident years 1982-1985 and the business produced by the former West Coast operation. The Company purchased that operation in 1981. The problem West Coast lines were primarily commercial automobile liability and other liability, including a substantial amount of contractors' and subcontractors' liability coverages. These claims turned out to have greater severity and much longer development periods than the Company had previously experienced. It was not until 1989 that the full extent of the problems started to become clear. The Company added $30 million to its reserves for that business in 1989, and until 1992 had no further adverse development. As of December 31, 1995, the Company has $19.4 million of reserves established for this business.
A part of the Company's reserve for losses and LAE is set aside for environmental, pollution and toxic tort claims. These claims relate to business written by the West Coast operation prior to 1986. At December 31, 1993, the reserves on these claims was $23.4 million. On June 7, 1994, the Company settled a dispute relative to approximately 400 of these claims. Any future liability on them is limited to 50% of the loss and reimbursement of the Company's 50% does not begin until the other company pays out subsequent to June 7, 1994 a total of $20 million in losses. The settlement also has policyholder surplus safeguards to the benefit of the Company built in to it. Future obligations, if any, are not likely to become payable for several years. Management has evaluated the estimated ultimate liability of this business and has concluded that the development of this settlement should not have a material impact on the company.
The policies corresponding to these claims were written on a direct basis. The Company has excess of loss reinsurance through 1980 of $100,000, and $500,000 after that date. The claims are reserved as follows at December 31, 1995 ($ in thousands):
The following table shows net investment income, realized gains, and the amount of the investment portfolio at the end of the year for 1995, 1994, and 1993:
Given the negative cash flow from operations, all fixed maturities are con- sidered available-for-sale. Accordingly, they are carried at market value as of December 31, 1995 and 1994. The market values of the fixed maturity invest- ments were $0.4 million above book value at the end of 1995 compared to $2.4 million below book value at the end of 1994. The weighted average yield of the fixed maturity investments was 5.9% for both 1995 and 1994.
During 1994, the Company was forced to sell bonds to meet cash requirements while interest rates were rising. This action resulted in significant realized losses. A declining interest rate environment in 1993 resulted in realized gains related to fixed maturity and equity investments. The 1993 gains were taken primarily in the bond portfolio to shorten maturities, maximize liquidity, and increase surplus.
Effective January 1, 1995, Forest Lake Travel Service, a subsidiary travel agency, was sold. FLT's pre-tax income was $95,000 in 1994 and $420,000 in 1993. The sale generated an insignificant gain in the first quarter of 1995.
The 1995 and 1994 provision for income taxes on operations of insignificant amounts resulted from certain life insurance taxable income and state income taxes that cannot be offset by tax operating losses.
In 1993, the Company recognized an income tax benefit from operations of $4.8 million and a $5.6 million income tax expense on the extraordinary gain from debt extinguishment. The net tax expense of $0.8 million includes the tax effect of certain life insurance taxable income and state income tax expense that cannot be offset by tax loss carryovers.
The Company has unused tax net operating loss carryforwards and capital loss carryforwards of $97.9 million for income tax purposes. However, due to a "change in ownership" condition that occurred in 1995, the Company's use of the net operating loss carryforwards are subject to limitation in future years to an amount estimated to be in the range of approximately $2.5 million to $3.0 million per year.
As the Company deliberately downsizes its exposure to underwriting risk, premium collections decline at a much faster pace than the decline in claim payments. Consequently, operations have used net cash in operating activities of $21.7 million in 1995, $44.6 million in 1994, and $43.6 million in 1993. During 1994, cash disbursements included $25.4 million for the non-recurring commutation of NCCI liabilities and a dispute settlement regarding a previously sold subsidi- ary. The 1993 cash used in operating activities would have been $43 million greater than the actual cash used had it not been for a non-recurring commu- tation of reinsurance ceded which produced a cash receipt in the amount of the reinsurance recoverable.
The volume of premiums that the property and casualty insurance subsidiaries may prudently write is based in part on the amount of statutory net worth as determined in accordance with applicable insurance regulations. The National Association of Insurance Commissioners has adopted risk based capital requirements for property and casualty insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investments and insurance risks such as asset quality, asset and liability matching,loss reserve adequacy, and other business factors. The RBC formula will be used by state insurance regulators as an early warning tool to identify, for the purpose of initiating regulatory action, insurance companies that are potentially inadequately capitalized. Compliance is determined by ratio of the companies' regulatory total adjusted capital to its authorized control level RBC (as defined by the NAIC). Three insurance subsidiaries of the Company have December 31, 1995 ratios of total adjusted capital to RBC that are comfortably in excess of the level which would prompt regulatory action.
We have audited the accompanying consolidated balance sheets of The Seibels Bruce Group, Inc. (a South Carolina corporation) (the Parent Company) and subsidiaries (collectively the Company ), as of December 31, 1995 and 1994, and the related consolidated statements of operations, changes in shareholders equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements and the schedules referred to below are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedules I, III, V, VI, VIII and X as of December 31, 1995 and for each of the three years in the period ended December 31, 1995 are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial state- ments. These schedules have been subjected to the auditing procedures applied in our audit of the basic financial statements, and in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain classifications previously presented in the consolidated financial statements for prior periods have been changed to conform to current classi- fications.
The fair value of fixed maturities, equity securities, short-term investments, mortgage loans on real estate, other long-term investments, cash and accrued investment income was $55.0 million and $62.7 million at December 31, 1995 and 1994, respectively. The fair values of cash and short-term investments approximate carrying value because of the short maturity of those instruments. Fixed maturities and equity securities fair values were determined in accordance with methods prescribed by the National Association of Insurance Commissioners, which do not differ materially from nationally quoted market prices. The fair value of certain municipal bonds is assumed to be equal to amortized cost where no market quotations exist. The fair value of mortgage loans on real estate is at net realizable value. Premium and agents' balances receivable are carried at their historical costs which approximate fair value as a result of timely evaluation of recoverability and allowance for uncollectible amounts.
The fair value of debt was $2.5 million and $0.4 million at December 31, 1995 and 1994, respectively. The fair value of debt is estimated to be its carrying value based on the current rates offered for debt having the same or similar terms, and remaining maturities.
Management, in conjunction with the Company's consulting actuaries, performs a complete review of the above components of the Company's loss reserves to eval- uate the adequacy of such reserves. Management believes the reserves, which approximate the amount determined by independent actuarial reviews, are sufficient to prevent prior years' losses from adversely affecting future periods; however, establishing reserves is an estimation process and adverse developments in future years may occur and would be recorded in the year so determined.
Allowance for uncollectible accounts for agents' balances receivable, other receivables, and premium notes receivable were $70,000, $79,000, and $75,000 at December 31, 1995 and $70,000, $151,000, and $245,000 at December 31, 1994, respectively. There are no significant credit concentrations related to premiums receivable, agents' balances, and premium notes receivable.
Property and equipment are stated at cost and, for financial reporting purposes, depreciated on a straight-line basis over the estimated useful lives of the assets. For income tax purposes, accelerated depreciation methods are used for certain equipment.
Other interest income for 1993 includes $1.0 million on an excess of loss reinsurance agreement which was commuted in 1993. Other interest income also includes interest received on reinsurance balances withheld, agents' balances receivable, and balances due from the South Carolina Reinsurance Facility. Other income for 1995 includes a gain from the settlement of a case previously in litigation. Other income for 1994 includes a $0.6 million gain on the sale of a subsidiary. Other income for 1993 includes $0.7 million from the sale of real estate.
In May 1993, FASB issued Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Statement No. 115 classifies securities into three categories: held-to-maturity, trading and available-for-sale. The Company's securities are classified as available-for-sale. Statement No. 115 requires available-for-sale securities to be reported at fair value and un- realized gains and losses reported in a separate component of shareholders' equity. The Company adopted Statement No. 115 effective January 1, 1994.
Net amortization of bond discount and premium charged to income for the years ended December 31, 1995, 1994 and 1993 are $3,000, $154,000 and $53,000, respectively.
There were no bonds which were non-income producing for the twelve months ended December 31, 1995.
Fixed maturity investments with an amortized cost of $21.9 million at December 31, 1995 and 1994 were on deposit with regulatory authorities.
(e) Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penal- ties. The amortized cost and estimated market value of fixed maturities at December 31, by contractual maturity, are as follows:
Policy acquisition costs incurred and amortized to income on property and casualty business are as follows:
Deferred policy acquisition costs attributable to the credit life operation were $293,000 at December 31, 1995 and $899,000 at December 31, 1994. These costs represent that portion of the cost of writing business which is deferred and charged against income, through other operating costs and expenses, as premiums are earned.
Notes payable at December 31, 1995 and 1994, are summarized as follows:
A major investor of the Company holds both notes. The $2 million note is secured to the extent of outstanding principal by (i) a first lien and security interest on all furniture, fixtures and equipment (current book value of $0.7 million) of SBC, and (ii) an assignment by SCIC, upon the sale of such real property owned by it, of the excess of the net proceeds of that sale over book value of such real property. The lien, security interest and assignment are subject to the prior written approval of the South Carolina Department of Insurance. Principal and accrued interest on the interest note payable is due May 1, 1996 (See Note 15).
The provision (benefit) for income taxes on loss from operations consists entirely of current income taxes. The change in deferred amounts has been offset by the valuation allowance.
The Company has determined, based on its recent earnings history, that a valuation allowance of $19.9 million should be established against the deferred tax asset at December 31, 1995. The Company's valuation allowance decreased by $19.2 million during 1995 due to utilization of net operating loss, reduction due to limitation of net operating loss and due to unrealized investment gains.
NOTE 7 PROPERTY AND CASUALTY UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSE
A part of the Company's reserve for losses and LAE is set aside for environ- mental, pollution and toxic tort claims. The majority of these claims relate to business written by the West Coast operation prior to 1986. On June 7, 1994, the Company settled a dispute relative to approximately 400 of these claims, and any future liability on them is limited to 50% of the loss. Reimbursement of the Company's 50% does not begin until the other company pays out a post June 7, 1994 total of $20 million. The settlement also has policyholder surplus safeguards inuring to the benefit of the Company built in to it. Future obligations, if any, are not likely to become payable for several years. Management has evaluated the estimated ultimate liability of this business and has concluded that the future development of the losses subject to this settlement should not have a material impact on the Company.
For the direct retained and assumed reinsurance without LAE claim limits, the Company is only one of a group of insurers. Each member of the group partici- pates in the handling and monitoring of the claim and the group selects one attorney to defend the case. Legal fees are prorated among the group based on each member's number of years of coverage. For assumed reinsurance with LAE limits, claims represent upper level excess policies assumed from the London market. As such, the primary insurers handle claim settlements and the Company pays its portion of the claim and LAE, up to its retention amounts, based on the settlement amounts determined by the primary insurers.
Losses are recognized as incurred and as estimated by the procedure previously described. Losses and LAE incurred have been reduced by recoveries made and to be made from reinsurers, which also includes substantial amounts related to business produced as a servicing carrier, as follows:
The ability of SBIG to declare and pay cash dividends, as well as to pay any debt service, is dependent upon the ability of SCIC to declare and pay dividends to SBIG. SCIC is regulated as to its payment of dividends by the South Carolina Insurance Holding Company Regulatory Act (the "Act").
The Act provides that, without prior approval of the South Carolina Insurance Commissioner, dividends within any twelve-month period may not exceed the greater of (i) 10% of SCIC's surplus as regards policyholders as of December 31 of the prior year or (ii) SCIC's statutory net income, not including realized gains, for the prior calendar year. Notwithstanding the foregoing, SCIC may not pay any dividend without the prior approval of the Insurance Commissioner of the State of South Carolina.
The Company's insurance subsidiaries' assets, liabilities and results of oper- ations have been reported on the basis of GAAP, which varies from statutory accounting practices ("SAP") prescribed or permitted by insurance regulatory authorities. The principal differences between SAP and GAAP, are that under SAP: (i) certain assets that are not admitted assets are eliminated from the balance sheet; (ii) acquisition costs for policies are expensed as incurred, while they are deferred and amortized over the estimated life of the policies under GAAP; (iii) no provision is made for deferred income taxes; (iv) the timing of establishing certain reserves is different than under GAAP; and (v) valuation allowances are established against investments. Each of the Company's insurance subsidiaries must file with applicable state insurance regulatory authorities an "Annual Statement" which reports, among other items, net income (loss) and shareholders' equity (called "surplus as regards policy- holders" in property and casualty reporting).
The range of option prices for options outstanding and exercisable at the end of 1995 is $0.8125 - $11.25. All grants made under the Plans have exercise prices no lower than the market price at the date of grant. At December 31, 1995, 4,118,825 shares of the Company's stock have been reserved for future grant, pending shareholder approval at the annual meeting in 1996.
The 1995 Stock Option Plan for Non-employee Directors became effective June 15, 1995, subject to shareholder approval at the 1996 annual shareholders' meeting. Under the plan, all non-employee directors will be automatically granted 5,000 options to purchase SBIG stock on an annual basis every June 15th. The exercise price will be the market value on the date of grant. On June 15, 1995, 35,000 options were granted at an exercise price of $0.875 which will become exercisable upon shareholder approval.
The 1995 Stock Option Plan for Independent Agents became effective December 21, 1995, subject to shareholder approval at the 1996 annual shareholders' meeting. There was no activity under this plan during 1995.
The following table presents the reconciliation of the funded status at December 31, 1995 and 1994:
The weighted average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was 9% for 1995; 12% for 1994 and 1993 and is assumed to decrease to a 5.5% ultimate trend (7% in 1994 and 1993) with a duration to ultimate trend of 6 years (9 years in 1994 and 1993). The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995 by $11,000.
The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.25% for 1995 and 7.5% at December 31, 1994 and 1993.
In the third quarter of 1993, Investors National Life Insurance Company, the Company's credit life and credit accident and health insurance subsidiary, transferred all of its assets, other than bonds pledged to various state insurance departments, and all of its liabilities to Investors National Life Insurance Company of South Carolina. Immediately following, all of the out- standing stock of Investors National Life Insurance Company was sold. The runoff of the business was assumed by Investors National Life Insurance Company of South Carolina. The pretax income (loss) of Investors National Life Insur- ance Company of South Carolina was $4,000, $(677,000) and $44,000 in 1995, 1994 and 1993, respectively.
Premium Service Corporation of Columbia ("PSC") provides insurance premium fin- ancing services through independent agents. Pretax income of Premium Service was $470,000 in 1993. In February, 1994, substantially all of the assets of PSC were sold, and a new company, Policy Finance Company, ("PFC") was formed to handle the administration of the assets retained. The pre-tax income of PFC was $74,000 in 1995 and $538,000 in 1994. The Company has no plans to continue its own premium financing activity.
The following sets forth certain information with respect to the Company's operations in different business segments:
Operating income (loss) represents revenue less related operating expenses. Net investment income is that related to, but not individually identifiable with, the various property and casualty insurance underwriting and commission and service activities business segments.
(b) Reinsurance contracts do not relieve the Company of its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geo- graphic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvency. Rein- suring companies are obligated for the following amounts for unearned premiums, unpaid losses and LAE, and paid losses and LAE:
The Company believes these balances from the various facilities are fully collectible due to the governmental agency's ability to assess member companies for deficiencies. The remaining recoverables due from nonaffiliated reinsurance companies have also been deemed fully collectible by the Company.
(b) Due to the nature of their business, certain subsidiaries are parties to various other legal proceedings, which are considered routine litigation inci- dental to the insurance business.
During the first quarter of 1996, the Company issued 6,250,000 shares of auth- orized but unissued shares to several related investors. The proceeds of the sale were deposited into escrow pending shareholder approval of the transaction and the approval of the South Carolina Department of Insurance to write new risk-taking business. In addition, shareholders are being asked to approve the voting of the stock since South Carolina law requires such approval for interest in excess of 20% of the voting rights. In conjunction with the sale of common stock, the Company also has issued stock options to acquire an additional 3,125,000 shares at the higher of $1.50 per share or book value at December 31, 1998 and 3,125,000 shares at the higher of $2.00 or book value at December 31, 2000.
Also during the first quarter of 1996, the Company issued 1,635,000 shares of authorized but unissued shares to a different group of investors. The proceeds of this stock sale will be available to liquidate the notes payable that are due May 1, 1996 (See Note 5). In addition, subject to shareholder approval of increasing the number of authorized shares, the Company has issued to this group stock options expiring December 31, 2000 to acquire an additional 1,635,000 shares at the higher of $2.50 per share or book value at the date of exercise.
QUARTERLY FINANCIAL INFORMATION (unaudited) (Thousands of dollars, except per share amounts)