<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. _____________________)
Mid American Alliance Corporation
(Name of small business issuer in its charter)
Missouri
(State or jurisdiction of
incorporation or organization)
--------------------------------
(Primary Standard Industrial
Classification Code Number
43-1749982
----------------
(I.R.S. Employer
Identification No.)
813 West Stadium Blvd. Suite A, Jefferson City, MO 65109
________________________________________________________________________________
(Address and telephone number of principal executive offices)
813 West Stadium Blvd. Suite A, Jefferson City, MO 65109
________________________________________________________________________________
(Address of principal place of business or intended principal place of business)
John Perkins, 1426 Inglenook Drive, Jefferson City, MO 65109
________________________________________________________________________________
(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public
January 1, 2001 ________________________________________________________________
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
________________________________________________________________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]_______________________________________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]_______________________________________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box.[ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Title of each Dollar Proposed maximum Proposed Amount
Class of Securities amount to offering price maximum aggregate of
to be Registered be registered per unit offering price registration fee
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<S> <C> <C> <C> <C>
Common Stock 10,000,000 $ 7.50 $10,000,000 $2,640.00
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</TABLE>
Note: Specific details relating to the fee calculation shall be furnished in
notes to the table, including references to provisions to Rule 457 (sec.230.457
of this chapter) relied upon, if the basis of the calculation is not otherwise
evident from the information presented in the table. If the filing fee is
calculated pursuant to Rule 457(o) under the Securities Act, only the title of
the class of securities to be registered, the proposed maximum aggregate
offering price for that class of securities and the amount of registration fee
need to appear in the Calculation of Registration Fee table. Any difference
between the dollar amount of securities registered for such offerings and the
dollar amount of securities sold may be carried forward on a future registration
statement pursuant to Rule 429 under the Securities Act.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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MID-AMERICAN ALLIANCE CORPORATION
813 WEST STADIUM BOULEVARD
SUITE A
JEFFERSON CITY, MISSOURI 65109
(573) 659-8545
---------------------------------------------
$10,000,000
1,333,334 shares of common stock
$7.50 per share
MID-AMERICAN ALLIANCE CORPORATION ("THE COMPANY") WAS FORMED ON MAY 1,
1996 TO ACT AS A FINANCIAL SERVICES HOLDING COMPANY. THERE IS NO PUBLIC MARKET
FOR THE COMMON STOCK OFFERED IN THIS OFFERING AND NO PUBLIC MARKET MAY DEVELOP
IN THE IMMEDIATE FUTURE. THE COMPANY HAS NO PRESENT PLANS TO APPLY FOR LISTING
ON ANY EXCHANGE. ACCORDINGLY, THE SECURITIES BEING OFFERED FOR SALE WILL BE
ILLIQUID FOR A SIGNIFICANT PERIOD OF TIME.
THE COMMON STOCK IS FULLY-PAID AND NON-ASSESSABLE, WITH DIVIDEND RIGHTS
SUBJECT TO THE PRIOR RIGHTS OF THE HOLDERS OF PREFERRED STOCK AND HAS FULL
VOTING RIGHTS.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
AND SUBSTANTIAL DILUTION. PROSPECTIVE PURCHASERS SHOULD BE PREPARED TO SUSTAIN A
LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY ANY STATE SECURITIES
COMMISSION OR THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE STATE OF
MISSOURI NOR THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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Price to Selling
Public Expenses (1) Proceeds to Company (2)
------------------------------- ----------------------------- ----------------------------------
<S> <C> <C> <C>
Per Unit $7.50 $.53 $6.97
Total: $10,000,000 $800,000 $9,200,000
</TABLE>
(1) The shares will be sold on a "best efforts" basis through Greystone
Securities, Inc., an NASD registered broker dealer who will receive a commission
of 5%. The remainder of the amount termed "Selling Expenses" above (which will
not exceed 3%) will be utilized by the Company in the overall sales effort and
includes accounting fees, attorneys' fees, advertising, registration fees, and
printing expenses associated with this offering. See, "Plan of Distribution."
(2) The Company is offering on a best efforts basis a total of
1,333,334 shares of Common Stock. Subscribers to the Shares in this Offering
will be allowed to purchase a minimum of $4,500 and a maximum of $225,000. The
Offering will be sold in increments of 10 shares or $75.00. The Offering will
remain open until all Shares offered hereby are sold or Management terminates
the selling effort. See, "Plan of Distribution" and "Purpose of the Offering and
Use of Proceeds."
This Prospectus is dated as of January 1, 2001
<PAGE> 3
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS
ON BEHALF OF THE COMPANY OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, ANY SUCH REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY SALES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANYONE IN ANY
STATE OR JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED,
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
MID-AMERICAN ALLIANCE CORPORATION ("THE COMPANY") IS A MISSOURI CORPORATION
ORGANIZED AS A FINANCIAL SERVICES HOLDING COMPANY. IT WILL PRIMARILY BE ENGAGED
IN THE OWNERSHIP OF INSURANCE COMPANIES AND A VENTURE CAPITAL COMPANY. IT MAY
ALSO ENGAGE IN OTHER ACTIVITIES AS PERMITTED BY LAW.
THE OFFERING
SECURITIES OFFERED 1,333,334 SHARES OF COMMON STOCK
COMMON STOCK OUTSTANDING ON JUNE
30, 2000 4,798,640 SHARES (1)
COMMON STOCK TO BE OUTSTANDING 6,131,974 SHARES (2)
AFTER THE OFFERING
PLAN OF DISTRIBUTION TO BE SOLD PRIMARILY MISSOURI, ILLINOIS,
KANSAS AND ARKANSAS RESIDENTS ON A "BEST
EFFORTS" BASIS THROUGH GREYSTONE SECURITIES
INC., WHO WILL RECEIVE A DIRECT COMMISSION
BASED UPON SUCH SALES OF 5% OF THE AMOUNT
SOLD AND AN OPTION FOR 133,333 SHARES OF
COMMON STOCK. SEE "PLAN OF DISTRIBUTION."
SALE OF LESS THAN TOTAL NUMBER THE OVERALL SUCCESS OF THE BUSINESS PLAN
OF UNITS WILL BE COMPROMISED IF SUBSTANTIALLY LESS
THAN THE TOTAL OFFERING IS SOLD. SEE
"PURPOSE OF THE OFFERING AND USE OF
PROCEEDS."
TERM OF OFFERING THE OFFERING WILL CONTINUE UNTIL EITHER ALL
SHARES ARE SOLD OR MANAGEMENT TERMINATES
THE SELLING EFFORT, BUT IN NO EVENT LONGER
THAN TWO YEARS FROM THE EFFECTIVE DATE OF
REGISTRATION OF THIS OFFERING.
USE OF PROCEEDS TO PROVIDE WORKING CAPITAL FOR THE COMPANY,
FORM AND CAPITALIZE A BANK HOLDING COMPANY,
CAPITALIZE THE VENTURE CAPITAL SUBSIDIARY,
PROVIDE ACQUISITION CAPITAL AND OTHER
PURPOSES AS DETERMINED BY THE BOARD OF
DIRECTORS. SEE "PURPOSE OF THE OFFERING
AND USE OF PROCEEDS."
(1) Consisting of 3,150,000 Common Stock shares issued at $.10 per share to
organizers and directors and 1,562,500 Common Stock shares issued at
$1.60 per share in a private placement, 168,797 shares in the public
offering from October 14, 1997 to August 31, 1999, and 60,000 Common
Stock shares of $.40 per share, less 353,500 Common Stock shares at
$.10 per share that was repurchased and placed in treasury stock.
(2) Assumes the sale of all 1,333,334 Shares offered in this Offering.
MID-AMERICAN ALLIANCE CORPORATION
<PAGE> 5
OFFERING MEMORANDUM
$10,000,000
1,333,334 SHARES
$7.50 A SHARE
$4,500 MINIMUM INVESTMENT
$225,000 MAXIMUM INVESTMENT
This Memorandum is dated as of January 1, 2001
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THIS PAGE HAS BEEN
LEFT BLANK
INTENTIONALLY
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MID-AMERICAN ALLIANCE CORPORATION
$10,000,000
1,333,334 SHARES
OFFERING PRICE: $7.50 PER SHARE
Mid-American Alliance Corporation, a Missouri Corporation (the
"Company"), offers up to a maximum of 1,333,334 shares("Shares")of its common
stock at $7.50 per share. The minimum investment is $4,500 and the maximum
investment that will be accepted is $225,000. The offering will be sold by
Greystone Securities, Inc., a NASD registered broker dealer, who will be making
the Offering on a "best-efforts basis" and by agents of the issuer. The broker
dealer will receive a commission not to exceed 5% of all sales made. The
Offering will terminate two years from the date of this prospectus, unless
sooner terminated or extended by the Company for up to a maximum of 90
additional days.
The Shares will be registered under the Securities Act of 1933 (the
"Securities Act") and the securities laws of various states or foreign nations.
There is currently no existing public or other market for the securities of the
Company and no such market may develop as a result of this Offering.
Consequently, purchasers of the securities offered hereby may not be able to
sell such securities for an extended period of time, if ever.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
SUBSTANCIAL DILUTION. PROSPECTIVE PURCHASERS SHOULD BE PREPARED TO SUSTAIN A
LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"AND "DILUTION".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORS OF ANY STATE NOR
HAS ANY OF THE FOREGOING PASSED UPON THE ACCURACY OR ADEQUACY OF THE MEMORANDUM.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------------
<PAGE> 8
<TABLE>
<CAPTION>
Price to Selling
Public Expenses (1) Proceeds to Company (2)
------------------------------- ----------------------------- ----------------------------------
<S> <C> <C> <C>
Per Unit $7.50 $.53 $6.97
Total: $10,000,000 $800,000 $9,200,000
</TABLE>
(1) The Company is offering the Shares directly through Greystone Securities,
Inc. a NASD registered broker dealer who will receive commissions not to exceed
5% of the amount sold. See "Plan of Distribution." The Company may also sell the
offering through agents of the issuer who will not receive any commissions for
making such sales.
(2) The Company is offering on a best efforts basis a total of 1,333,334 shares
of Common Stock. Subscribers to the Shares in this Offering will be allowed to
purchase a minimum of $4,500 and a maximum of $225,000. The Offering will be
sold in increments of 10 shares or $75.00. The Offering will remain open until
all Shares offered hereby are sold or Management terminates the selling effort.
See, "Plan of Distribution" and "Purpose of the Offering and Use of Proceeds."
ALL PAYMENTS FOR SUBSCRIPTIONS MUST BE MADE BY CHECK, BANK DRAFT OR
MONEY ORDER MADE PAYABLE TO "MID-AMERICAN ALLIANCE CORPORATION."
The Shares are offered subject to acceptance by the Company and subject
to satisfaction of certain conditions. The Company reserves the right to
withdraw, modify or cancel the Offering without notice and to reject orders in
whole or in part.
The offering price of the Shares has been determined by the Company and
bears no direct relationship to the assets, earnings or book value of the
Company or any other recognized criteria of value.
The Company intends to deliver to its stockholders an annual report
containing certified financial statements within 150 days of the end of each
fiscal year. The Company's fiscal year is the calendar year.
For a description of investor suitability standards and subscription
procedures, see "Subscription Procedures" and "Investor Suitability Standards."
The Company's books and records will be located at its executive
offices, 813 W. Stadium Blvd., Suite A, Jefferson City, Missouri 65109. The
Company's telephone number is 573 659-8545.
THIS MEMORANDUM (THE "MEMORANDUM") IS SUBMITTED IN CONNECTION WITH THE
OFFERING (THE "OFFERING") OF SHARES OF COMMON STOCK IN MID-AMERICAN ALLIANCE
CORPORATION. DISTRIBUTION OF THE MEMORANDUM, IN WHOLE OR IN PART, IS NOT
PERMITTED UNLESS EXPRESSLY AUTHORIZED IN ADVANCE IN WRITING BY AN OFFICER OF THE
COMPANY OR THE BROKER DEALER SELLING THE OFFERING. NO OFFERING LITERATURE OR
ADVERTISING IN ANY FORM SHALL BE EMPLOYED IN THE OFFERING EXCEPT FOR INFORMATION
CONTAINED HEREIN AND IN ATTACHMENTS OR EXHIBITS HERETO AND TO THE EXTENT
AUTHORIZED BY THE OFFICERS OF THE COMPANY. NO PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED HEREIN
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE OFFICERS OF THE COMPANY.
BECAUSE THE INVESTMENT INVOLVES A HIGH DEGREE OF RISK, IT IS SUITABLE
ONLY FOR PERSONS WHO CAN DEMONSTRATE THAT THEY HAVE THE ABILITY TO EVALUATE THE
OFFERING OR THAT THEY HAVE RETAINED THE SERVICES OF A REPRESENTATIVE WHO HAS
SUFFICIENT KNOWLEDGE AND EXPERTISE TO EVALUATE THE INVESTMENT.
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THE
MEMORANDUM OR ANY PRIOR OR SUBSEQUENT COMMUNICATION FROM THE COMPANY OR ANY
PROFESSIONAL ASSOCIATED WITH THE OFFERING, AS LEGAL, TAX OR INVESTMENT ADVICE.
EACH INVESTOR SHOULD CONSULT WITH AND RELY ON HIS/HER OWN PERSONAL COUNSEL,
ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX AND ECONOMIC
ii
<PAGE> 9
IMPLICATIONS OF THE INVESTMENT DESCRIBED HEREIN AND ITS SUITABILITY FOR THE
INVESTOR.
NEITHER THE DELIVERY OF THE MEMORANDUM NOR ANY SALES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THE
MEMORANDUM.
THE MEMORANDUM CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ONLY IN JURISDICTIONS IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE LAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER APPLICABLE
SECURITIES LAWS (AS DEFINED UNDER THE SECURITIES ACT). THE MEMORANDUM DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION TO ANYONE IN ANY STATE OR IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED. THE
COMPANY RESERVES THE RIGHT TO WITHDRAW OR MODIFY THE OFFERING AND, IN ITS SOLE
DISCRETION, TO ACCEPT OR REJECT ANY SUBSCRIPTIONS HEREUNDER.
STATEMENTS CONTAINED HEREIN AS TO THE CONTENTS OF ANY AGREEMENT OR
OTHER DOCUMENTS ARE SUMMARIES AND, THEREFORE, ARE NECESSARILY SELECTIVE AND
INCOMPLETE. COPIES OF THE DOCUMENTS REFERRED TO HEREIN MAY BE OBTAINED FROM THE
COMPANY AND ARE AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY.
MID-AMERICAN ALLIANCE CORPORATION
813 W. STADIUM BLVD.,
SUITE A,
JEFFERSON CITY, MISSOURI 65109
iii
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
SUBSCRIPTION PROCEDURES................................................................................... 1
INVESTOR SUITABILITY STANDARDS............................................................................ 1
MEMORANDUM SUMMARY........................................................................................ 1
RISK FACTORS.............................................................................................. 3
THE BUSINESS.............................................................................................. 5
CAPITALIZATION............................................................................................ 8
DESCRIPTION OF SECURITIES................................................................................. 8
PLAN OF DISTRIBUTION...................................................................................... 9
DETERMINATION OF OFFERING PRICE........................................................................... 12
DILUTION.................................................................................................. 12
DESCRIPTION OF THE SHARES................................................................................. 13
OFFICERS AND DIRECTORS.................................................................................... 14
SECURITY OWNERSHIP........................................................................................ 20
ADDITIONAL INFORMATION.................................................................................... 20
LEGAL MATTERS............................................................................................. 21
ANNUAL REPORTS TO STOCKHOLDERS............................................................................ 21
INDEX TO FINANCIAL STATEMENTS............................................................................. 21
EXHIBIT A-SUBSCRIPTION AGREEMENT.......................................................................... A-1
</TABLE>
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SUBSCRIPTION PROCEDURES
The execution of a Subscription Agreement constitutes a binding offer
to buy Shares and an agreement to hold open the offer to buy the Shares until
the subscription is accepted or rejected by the Company. No subscriptions will
be valid unless accepted in writing by an officer of the Company.
Prospective investors who wish to invest must deliver the following
items to the Company:
1. An executed Subscription Agreement with the appropriate blanks
completed (see Subscription Documents, separate from the Memorandum);
2. An executed Purchaser Questionnaire with the appropriate blanks
completed (see Subscription Documents);
3. A check, bank draft or money order, payable to the order of
"MID-AMERICAN ALLIANCE CORPORATION" in the amount of the subscription.
The original Subscription Documents to be executed by each subscriber
are contained in a packet that accompanies the Memorandum. On delivery of the
executed Subscription Documents and expiration of any state rescission rights,
the subscriber will become bound by its terms and will not be able to revoke his
or her subscription. However, the Company reserves the right to reject any
subscription, in whole or in part, in its sole discretion.
INVESTOR SUITABILITY STANDARDS
Only persons who have adequate financial means and no need for
liquidity with respect to their investment should purchase any Shares because
(1) no market for the Shares exists nor may develop as a result of this
Offering, and (2) the Shares are speculative. See "Description of Shares." The
Company and the broker dealer will not sell the Shares to any purchaser unless,
in the judgment of the Company and/or the broker dealer, the investment is
suitable for such purchaser based on the information provided in the
Subscription Documents.
All representations by prospective investors shall be reviewed and
relied upon by the Company in determining the suitability of such person under
applicable securities laws and regulations.
MEMORANDUM SUMMARY
This summary is qualified by reference to the detailed information
appearing elsewhere in the Memorandum.
THE COMPANY AND ITS BUSINESS PLAN
Mid-American Alliance Corporation (the "Company) was formed on May
1,1996 to act as a financial services holding company. On December 31,1997 the
Company acquired 100% of Mid-American Century Life Insurance Company, a Missouri
insurance company. The Company formed a venture capital subsidiary Mid American
Capital Corporation on February 6,1998. On April 14, 2000 Mid-American Century
Life Insurance Company began selling its insurance products in Missouri. In its
first twenty weeks of selling it has submitted over $500,000 in premiums. On May
22, 2000, Mid American Century Life Insurance Company purchased 100% of the
outstanding shares of Mid-American Century Life Insurance Company of Arkansas,
which has changed its name to Security Alliance Insurance Company. Mid American
Century Life Insurance Company and Mid-American Alliance Corporation jointly
purchased the Ken Johnson Insurance Agency on June 1, 2000. The Ken Johnson
Insurance Agency has approximately 2000 clients and is licensed in Missouri and
Iowa.
There is no public market for the Shares to be sold in this Offering
and it is not anticipated that a public market will develop in the immediate
future. The Company has no present plans to apply for listing on any exchange.
Accordingly, the securities being offered for sale will be extremely illiquid
for a significant period of time.
The purpose of this offering will be to further capitalize the venture
capital company, provide capitalization for a bank holding company, provide
acquisition capital, and provide working capital to the Company. There can be no
assurance that the Company will be successful in selling this Offering or in
conducting insurance or banking business.
1
<PAGE> 13
THE OFFERING
The Company is offering 1,333,334 Shares of Mid-American Alliance
Corporation common stock, for a period of two years from the date of this
prospectus, unless sooner terminated or extended at the option of the Company
for up to an additional 90 days. The proceeds from the sale of the Offering will
be placed in escrow until $1,000,000 of stock has been sold. The minimum
investment is $4,500 and the maximum investment is $225,000. The Offering will
be sold in increments of 10 shares or $75.00.
SECURITIES
The Shares are common stock of Mid-American Alliance Corporation. The
authorized capital stock of the Mid-American Alliance presently consists of
8,000,000 shares of $.10 par value common stock and 550,000 shares of preferred
stock, $5.00 par value. See "Description of Shares." As of the date of this
Offering, 4,798,640 Shares are issued and outstanding, (5,954,000 shares when
conversion is completed). See "Description of Shares."
Holders of shares of common stock have ratable rights to declared
dividends and all assets distributed to stockholders upon liquidation and are
entitled to one vote per Share. There are no preemptive, subscription or
conversion rights.
CERTAIN RISK FACTORS
Participating in the Offering involves certain risks, including the
risk that the Company will not be able to complete the capitalization of the
bank holding company and that the venture capital company may be unable to find
appropriate investments. See Risk Factors - Additional Financing Requirements."
Potential investors should review the entire Memorandum, including "Risk
Factors."
DILUTION
This Offering involves immediate substantial dilution in the amount of $4.77
(64%) per Share in Mid-American Alliance Corporation, assuming the sale of all
1,333,334 Shares pursuant to this Offering, from the offering price of $7.50.
See "Dilution."
USE OF PROCEEDS
The net proceeds of this Offering will use approximately $1,000,000 to
capitalize its venture capital company. It intends to use $5,000,000 to create a
bank holding company, of which $2,500,000 will be used to form a bank in
Illinois or a surrounding state. It intends to use $2,000,000 for acquisition
capital and approximately $1,500,000 of the proceeds will be used as working
capital for its operations. "Use of Proceeds."
MARKET INFORMATION
The Shares, which make up the Shares are not currently traded publicly and no
public market is expected to develop as a result of this Offering. No assurance
can be given that the Shares will be able to be traded for some time in the
future.
2
<PAGE> 14
RISK FACTORS
EACH PROSPECTIVE INVESTOR SHOULD, PRIOR TO SUBSCRIBING, CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION SET FORTH
ELSEWHERE IN THE MEMORANDUM.
RISK OF LOSS OF INVESTMENT. This Offering involves a high risk
investment in a corporation that has limited current operations and limited
assets. Potential investors must be willing to risk the entire loss of their
capital. The investor's potential loss is limited to the amount of their
investment in this offering. No assurance or guarantee can be given that any of
the potential benefits described in this Prospectus will prove to be accurate or
available, nor can any assurance or guarantee be given as to the actual amount
of financial return, if any, which may result from an investment in this
Offering. The information in the Prospectus is believed to be accurate, but such
accuracy cannot be and is not guaranteed. ANY INVESTMENT IN THIS OFFERING SHOULD
BE CONSIDERED A HIGH RISK INVESTMENT AND ANY SUCH INVESTMENT SHOULD BE
RESTRICTED TO AN INVESTOR'S RISK CAPITAL ONLY.
NO PAYMENT OF DIVIDENDS. The Company intends to use all proceeds from
the Offering and any retained earnings to finance the growth of the business.
The payment of dividends will be contingent on the Company's revenues and
earnings, if any, its capital requirements and its general financial condition.
The payment of dividends rests within the discretion of its Board of Directors.
No dividends have been declared or paid in the Company's history, and there is
no present intention to pay dividends. There can be no assurance that dividends
will be paid at any time in the future.
CONTROL BY OFFICERS AND DIRECTORS. As of October 1, 2000, the Company's
current officers and directors and a company with which one of the Company's
executive officers is affiliated, First Alliance Corporation ("FAC"), owned
approximately 24% of the outstanding Shares of common stock of the Company.
After this Offering, the Company's officers, directors, and FAC will own
approximately 20% of the outstanding Shares of Common Stock. As a result,
management and FAC will most likely continue to be able to elect all directors
and otherwise control all corporate actions and changes. In other words,
investors will not be able to elect any directors or exert any control over
operations of the Company.
NO MARKET FOR SHARES. There is currently no existing public or other
market for such securities and no such market will develop as a result of this
Offering. Consequently, purchasers of the Shares may not be able to sell such
securities for an extended period of time. The Company plans to but has no
obligation to seek a listing of the Shares, and no assurance can be given that
the Shares will be listed in the future. There is no assurance that any market
will develop for the securities being sold in this offering. See "Description of
Capital Stock."
DETERMINATION OF OFFERING PRICE. The offering price of the Shares
offered hereby was determined solely by the Company and does not necessarily
bear any relation to the market or book value of the assets or prospects of the
Company, the valuation of other companies in the industry or any other accepted
criterion of value. See "Determination of Offering Price."
DILUTION. When this offering is fully sold and assuming all preferred
stock has been converted, the Offering will involve immediate and substantial
dilution to the investors in the amount of $4.77(64%) per share, from the
offering price of $7.50 per share. See "Dilution".
BEST EFFORTS OFFERING. This Offering is being made on a best efforts
basis by the registered broker dealer and agents of the issuer. Accordingly,
there can be no assurance that all or any portion of the Offering will be sold.
If less than all of the offered Shares are sold prior to the termination of the
Offering, the Company will have less funds available for its business purposes.
See "Use of Proceeds"; "Plan of Distribution"; and "The Business".
RISKS ASSOCIATED WITH INSURANCE COMPANIES. There are a number of
factors, which are unique to the insurance industry. These factors may have
adverse effects on the operating results of the life insurance company. While
the insurance company has been in existence since 1983, it began selling
insurance for the first time in several years on April 14, 2000. The cost of
placing new policies in force is usually greater than the amount of the first
year's premium and ,accordingly, in the early years of a life insurance company
these initial costs and required provisions for reserves tend to have an adverse
effect on operating results, although generally-accepted accounting principles
applicable to stock life insurance companies require certain of these costs to
be amortized over the period during which related premiums are earned.
3
<PAGE> 15
The duration of the period during which the losses may be sustained as
a result of this factor will be prolonged, if among other events, policies lapse
before acquisition costs are recovered, the return on investments is lower than
anticipated, mortality experience is unfavorable, or if too much insurance is
placed upon the books of the Company. Because of the relatively limited capital
and the absence of broad diversification of risk, a company just beginning to
sell insurance products may be more susceptible to losses than older, more
established companies.
The Company's insurance subsidiary will be subject to risk associated
with assumptions regarding the products to be sold, the future policy benefits,
and interest rate fluctuations. If the Company's assumptions regarding the
demand for its products, or if it underestimates future policy benefits the
Company's ability to make a profit could be impacted.
RISKS ASSOCIATED WITH VENTURE CAPITAL COMPANIES. The Company has formed
a venture capital subsidiary, Mid-American Capital Corporation. That subsidiary
has limited proceeds and no operating history. The success or failure of this
entity will depend to a considerable extent upon the ability of the Venture
company to obtain the necessary expertise to either manage or advise it in the
placement of its capital, and the existence of enough investment opportunities
of sufficient merit that the capital of this subsidiary can be judiciously
employed. See "The Business."
RISKS ASSOCIATED WITH BANK HOLDING SUBSIDIARY. The Company has several
persons with banking backgrounds on its Board of Directors and Advisory Board;
however none of the senior management team has such background. The Company will
have to recruit individuals with a banking experience to operate the bank.
Failure to attract these individuals would effect the profitability of the
proposed bank. The Company would not create a bank holding subsidiary unless it
can recruit such individuals. In addition, the banking business is very interest
rate senstive. If interest rates were to increase dramatically and impact
margins, a bank might not be profitable.
COMPETITION. The life insurance industry is a highly competitive
business. As of the date of this Memorandum, the Missouri Department of
Insurance reports that there are 40 domestic life insurance companies authorized
to conduct a life insurance business in Missouri and 587 foreign(out of state)
companies authorized to conduct a life insurance business in Missouri. Many of
these companies will have significantly larger capitalization and operations
than will the Company's life insurance subsidiary. Accordingly, competition for
new life insurance policies will be significant which may have a negative impact
on the Company's ability to operate profitably. In addition, the banking
business is a highly competitive business. Many of the banks will have
significantly larger capitalization and operations than the Company's banks.
Accordingly, competition for banking business will be significant which may have
a negative impact on the Company's ability to operate profitably. See "The
Business."
DEPENDENCE UPON KEY PERSONNEL. The ability of the Company to continue
its operations successfully will be dependent primarily upon the efforts of
Scott J. Engebritson, Chairman of the Board, and Harold D. Woodward, President.
See "Management." The Company has entered into employment agreements with these
persons but has not obtained any "key man" life insurance on their lives. The
loss of the services of either of these officers could have a material adverse
effect on the ability of the Company to operate successfully.
REVENUES; NO ASSURANCE OF FUTURE PROFITABILITY. The Company has limited
revenues or operating profits to date. Moreover, there can be no assurance that
the Company will derive sufficient revenues from its operations or operate on a
profitable basis. The likelihood of the success of the Company must be
considered in light of the problems, costs, difficulties and delays encountered
in connection with the start-up of a new business, and the competitive
environment in which it will operate. See "The Business."
DISCRETIONARY USE OF PROCEEDS. A substantial portion of the proceeds of
the Offering are intended to be utilized generally to implement the proposed
business plan and growth of the Company, such as the creation of bank subsidiary
and investment in other properties and companies as allowed by the rules and
regulations of the State of Missouri Department of Insurance. Accordingly,
prospective investors who invest in the Company will be entirely dependent on
the judgment of management of the Company in connection with the allocation of a
portion of the funds raised herein. There can be no assurance that
determinations ultimately made by such persons relating to the specific
allocation of the net proceeds of the Offering will permit the Company to
achieve its business objectives. See "Use of Proceeds."
GOVERNMENTAL REGULATION. The Company intends to operate in the
financial services area. This area has numerous regulations including rules
concerning the capital of companies in the financial services business, the
types of business a company may engage in, consumer protection rules, and other
requirements which could effect the Company. Should any of these requirements be
changed in a material way, the changes could impact the profitability of the
Company.
4
<PAGE> 16
POTENTIAL CONFLICTS OF INTEREST. One of the Company's executive
officers, Mr. Engebritson is also an executive officer/director of several other
financial holding companies and Life Insurance Companies. These are Mid-Atlantic
Capital of Charleston, West Virginia, Western States Alliance Corporation of
Colorado Springs, Colorado, Benefit Capital Life Insurance Co. of New Orleans,
Louisiana, Security Alliance Insurance Co. of Little Rock, Arkansas, First
Alliance Corporation of Lexington, Kentucky, and First Alliance Insurance
Company of Lexington, Kentucky. It is anticipated that Mr. Engebritson will
devote up to 40% of his time to the Company. In the future, the Company may
compete with some or all of these corporations concerning the allocation of the
time and attention of Mr. Engebritson. In addition, another potential conflict
of interest exists in that several of these companies may ultimately compete
with the Company in the life insurance industry.
FORWARD LOOKING STATEMENTS. This Offering Memorandum contains certain
statements of a forward-looking nature relating to future events or future
financial performance of the Company. Prospective investors are cautioned that
such statements are only predictions and that actual events or results may
differ materially. In evaluating such statements, prospective investors should
specifically consider the various factors identified in or incorporated by
reference into this Offering Circular, including the matters set forth under
this caption "Risk Factors," which could cause actual results to differ
materially from those indicated in such forward-looking statements.
THE BUSINESS
INTRODUCTION
Mid-American Alliance Corporation was incorporated in Missouri on May
1, 1996. The Company has limited history of operations and was formed for the
primary purpose of becoming a financial services holding company. The Company
has five salaried employees, and will be hiring and training personnel to carry
out its business plan. Additional administrative personnel will be hired as
needed. The Company has entered into a lease agreement for office space at 813
W. Stadium Blvd., Suite A, Jefferson City, Missouri 65109.
MID-AMERICAN CENTURY LIFE INSURANCE COMPANY
LIFE INSURANCE SUBSIDIARY
The Company owns 100 % of a life insurance subsidiary. The Company
purchased a Missouri domiciled life insurance company, Mid-American Century Life
Insurance Company. In its first year of operations, MACLIC showed an after tax
statutory profit of $114,000. It is currently marketing a ten-level term product
to the shareholders of Mid-American Alliance Corporation. It has received its
Certificate of Authority to expand its charter in Arkansas.
Mid-American Century Life Insurance Company was incorporated in
October of 1983 and has been registered with the Missouri Department of
Insurance since December 1, 1983. Many states require that an insurance company
be in business for a minimum number of years before becoming licensed.
Mid-American Century Life Insurance Company can apply for registration in most
states because of how long it has been chartered in Missouri. Until April 14,
2000 it had not actively sold insurance products in the state of Missouri for
the last two years. Since it began selling insurance in Missouri it has
submitted over $500,000 in premiums. Missouri insurance laws require that a
newly chartered life insurance company be capitalized with a minimum of
$1,200,000 of capital and surplus. The Company's life insurance subsidiary was
capitalized with $6,000,000.
On May 22, 2000, Mid American Century Life Insurance Company of
Missouri purchased 100% of the outstanding shares of Mid-American Century Life
Insurance Company of Arkansas. The purchase price was $250,000. The name of that
company has been changed to Security Alliance Insurance Company. The Arkansas
company has been licensed with Arkansas Department of Insurance since 1957. It
has had limited activity for the past several years.
The Mid American Century Life Insurance Company is subject to the
regulation and supervision of the Director of the Missouri Department of
Insurance. Such regulation is primarily for the benefit of policyholders rather
than stockholders of the Company. Broad administrative powers are possessed by
the Department. These powers include the authority to grant and revoke licenses
to transact business, to approve the form of insurance contracts, to regulate
capital requirements, to regulate the character of permitted investments, and to
require deposits for the protection of policyholders. The Missouri Insurance
Code requires the filing of a detailed annual report with the Department. The
5
<PAGE> 17
insurance subsidiary's business and financial accounts will be subject to
examination by the Department, as well as insurance departments of any other
states in which it may do business.
There can be no assurance that the Company's insurance subsidiary will
be able to satisfy the regulatory requirements of the Department or a similar
department in any other state in which it may wish to transact business.
The Company, as the holder of 100% of the shares of a Missouri
insurance company, will also be subject to the provisions of the Missouri
Insurance Holding Company Act. The provisions of said Act generally provide for
restrictions on a change in control of the insurance company, require the filing
of certain reports with the Department, and limit the amount of dividends which
may be received by the holding company from the insurance company subsidiary.
The life insurance industry is fiercely competitive. A.M. Best Company
reports that there are more than 2,600 chartered life insurance companies in the
United States. The most recent survey from the Missouri Department of Insurance
reports that as of December 31, 1999, there were 40 domestic
(Missouri-chartered) life insurance companies and an additional 587 companies
incorporated in other jurisdictions which are authorized to sell life insurance
in Missouri. Many of the life insurance companies authorized to do business in
Missouri are well-established companies with fine reputations, offering a
broader line of insurance policies, having larger selling organizations, and
greater financial resources than the Company's insurance subsidiary will have
when it commences operations. There is also considerable competition among
insurance companies in obtaining qualified sales agents.
There are certain factors particular to the life insurance business
that may have an adverse effect on the operating results of its insurance
subsidiary. The basic factors are that cost of putting a new policy in force is
usually greater than the first year's premium thereon, and, accordingly, in the
early years of producing new life insurance business, these initial costs and
the required provisions for reserves tend to have an adverse effect on operating
results. The Company's insurance subsidiary, as is common among new or inactive
life insurance companies, could operate at a loss for a number of years because
of the substantial costs of writing new life insurance. The aggregate cost of
writing new life insurance includes such significant nonrecurring items as first
year commissions, medical and investigation expenses, and other expenses
incident to the issuance of new policies, together with the initial reserves
required to be established. Accordingly, it is generally recognized that the
cost of putting a new policy in force is substantially greater than the first
year premium. As a result, the reported profits of a new life insurance company
are affected adversely. Such a company may be expected to sustain losses for a
number of years, during which time earnings are not available for dividends.
The Company officers have a combined 44 years of experience in the sale
and administration of life insurance products. However, there can be no
assurance that the Company will be successful.
KEN JOHNSON AGENCY
The Company and Mid American Century Life Insurance Company own the Ken
Johnson Insurance Agency. The Company and its life subsidiary purchased the
agency on June 1, 2000 for a price of $500,000. The Ken Johnson Agency has
approximately 2000 clients and is licensed to sell insurance products in both
Missouri and Iowa.
The Company formed a venture capital subsidiary, Mid-American Capital
Corporation, on February 6, 1998 but has not capitalized the company.
Mid-American Capital Corporation has limited funding and no operating history.
If the Company is successful in raising sufficient capital, it proposes to
capitalize a venture capital subsidiary at an initial amount of $1 million.
BANK HOLDING COMPANY SUBSIDIARY
The Company has demonstrated in the life insurance business the ability
to recruit and build a Board of Directors of knowledgeable, influential,
respected business people. The Board of Directors of the Company has extensive
experience involving banks, which includes serving on bank boards, serving as
bank presidents, and being executive director a bankers association amounting to
over 50 years of experience. The Company believes it can recruit a highly
qualified Board of Directors for a bank holding company.
Newly passed legislation at both the state and federal level has
created an opportunity for Company to form a bank holding company, which would
form and own a bank. Large bank mergers have resulted in numerous reductions of
6
<PAGE> 18
personal service in small to medium sized towns in the Midwest. Such mergers
have displaced a number of highly qualified bank personal. Using it's Advisory
Board and shareholder base the Company believes it can form or purchase
community banks that would offer a range of products, including insurance, with
a personal touch of a community owned bank. The Company's plan is to research
and locate areas in which management believes a community bank could thrive. The
bank holding company would then approach local investors who would invest half
of the $5,000,000 required capital to form or purchase a bank. The Company would
invest the other half of the amount needed $2,500,000 and retain a 50% ownership
in the bank. The local investors would create a local or hometown influence for
the bank. The Company because of its statewide contacts and business in
surrounding states believes it can find locations that would meet these
criteria. The Company would intend to offer banking services and insurance
services through its agency to bank customers.
BECAUSE MANAGEMENT DOES NOT HAVE THE ADVANCE ABILITY TO DETERMINE WHETHER A
LOCATION TO SUPPORT A COMMUNITY BANK OR TO FORESEE THE ECONOMIC CONDITIONS IN
THE FUTURE, MANAGEMENT RESERVES THE RIGHT TO REDIRECT THE NET PROCEEDS OF THE
PROPOSED PUBLIC OFFERING ALLOCATED TO THE BANK HOLDING COMPANY SUBSIDIARY
PORTION OF THE COMPANY'S BUSINESS PLAN FOR ACQUISITION PURPOSES
MID-AMERICAN CAPITAL CORPORATION
VENTURE CAPITAL SUBSIDIARY
The Company formed a venture capital subsidiary, Mid-American Capital
Corporation, on February 6, 1998 but has not capitalized the company.
Mid-American Capital Corporation has limited funding and no operating history.
If the Company is successful in raising sufficient capital, it proposes to
capitalize a venture capital subsidiary at an initial amount of $1 million.
The Board of Directors may consider an investment in a venture fund for
the venture capital subsidiary. Such a fund would focus upon companies located
in Missouri and providing seed capital to those businesses.
The venture capital fund would invest in start-up or expansion of
existing businesses. Investments may be for start-up companies or for expansion
of existing businesses, and may take the form of equity, loans, guarantees or
combinations of these alternatives. Limits will be established for investments
in any single entity to spread the risk, but providing venture capital is an
inherently risky undertaking.
The officers of the Company have very limited experience in venture
capital management and the Company will seek to attract either individuals with
appropriate skills to manage the investments or contract for services from
separate entities with demonstrable expertise.
The Company's venture capital subsidiary will have a network of
community leaders who will help the subsidiary identify and evaluate requests
for venture capital funding in any geographic area. Thus, the Company will be in
a unique position of having access to much more information about the projects
and the character and business abilities of the people behind those projects
than would be available to most venture capital companies.
The Company also plans to rely upon information from its Advisory Board
members and shareholders to provide information about prospective investments
for the venture capital subsidiary. This "deal flow" of prospective investments
is essential to the success of the venture capital subsidiary.
BECAUSE MANAGEMENT DOES NOT HAVE THE ADVANCE ABILITY TO DETERMINE AN ADEQUATE
DEAL FLOW NECESSARY TO SUPPORT A VENTURE CAPITAL BUSINESS, MANAGEMENT RESERVES
THE RIGHT TO REDIRECT THE NET PROCEEDS OF THE PROPOSED PUBLIC OFFERING ALLOCATED
TO THE VENTURE CAPITAL PORTION OF THE COMPANY'S BUSINESS PLAN FOR ACQUISITION
PURPOSES.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 2000, and the pro forma capitalization as of such date to give effect
to the issuance of the maximum number of Shares offered hereby. This table
should be read together the audited financial statement of Company for the year
ending December 31, 1999.
<TABLE>
<CAPTION>
Actual at
June 30, 2000 As Adjusted (1)
------------- -----------
<S> <C> <C>
Total Liabilities $ 373,773 $ 373,773
-------------------- ----------------------
Shareholders' Equity:
</TABLE>
7
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------- ----------------------
Preferred stock, 8% non-cumulative,
convertible, callable, $5.00 par and
liquidation value, 640,000 shares authorized;
281,527 shares outstanding 1,592,700 1,592,700
Common stock, $.10 par value, 7,600,000
Shares authorized, 4,798,640 shares issued
(as adjusted, 6,131,974 maximum) 479,864 613,197
Additional paid in capital 7,751,779 7,835,780
Accumulated deficit (2,605,174) (2,605,174)
Common stock in treasury (32,400) (32,400)
Accumulated other comprehensive income (17,127) (17,127)
-------------------- ----------------------
Total Shareholders' Equity 7,170,642 14,529,916
-------------------- ----------------------
Total Capitalization $ 7,544,415 $ 16,024,960
==================== ======================
</TABLE>
(1) Assumes net proceeds from this Offering of $9,200,000.
After all shares of Preferred Stock are converted to Common Stock the
outstanding Shares will be 5,954,000.
DESCRIPTION OF SECURITIES
The authorized stock of the Company consists of 15,000,000 shares of
Common Stock, $.10 par value as stated in the Articles of Incorporation, and
640,000 shares of Preferred stock, $5.00 par value. As of June 30, 2000,
4,798,640 Shares of Common Stock are issued and outstanding. Upon conversion of
the Preferred Stock, the Company will have 5,954,000 Shares of Common Stock
outstanding. The Shares of Common Stock, when issued, will be fully paid and
nonassessable.
DESCRIPTION OF COMMON STOCK
In the event of liquidation, holders of the Company's Common Stock are
entitled to participate equally per Share in all assets, if any, of the Company
remaining after the payment of all liabilities. Holders of the Common Stock are
entitled to such dividends as the Board of Directors, in its discretion, may
declare out of funds available therefor.
All shareholder rights conferred by the provisions of the Missouri
Revised Statutes governing corporate entities as amplified or amended by the
Company's Articles of Incorporation and by-laws shall vest in the subscriber's
immediately upon acceptance of the subscription by the Company. These rights
include, inter alia, voting rights, liquidation and other preferences, etc.
The holders of the Common Stock are entitled to one vote for each Share
held of record in each matter submitted to a vote of stockholders. The Articles
of Incorporation of the Company do not allow cumulative voting in the election
of directors and, therefore, the holders of a majority of the outstanding Common
Stock represented at any meeting at which a quorum is present will be able to
elect all the directors. A majority of the outstanding Shares of stock entitled
to vote constitutes a quorum at any shareholder meeting. There are no preemptive
or other subscription rights, conversion rights, registration or redemption
provisions with respect to any Shares of Common Stock.
DESCRIPTION OF PREFERRED STOCK
The Articles of Incorporation authorized the Board of Directors to
issue 640,000 shares of Preferred Stock. The Articles of Incorporation establish
the rate of dividends, redemption terms, liquidation rights, voting rights,
conversion rights, and any other lawful rights, preferences and limitations of
each of the preferred shares. The preferred stock was sold as part of a Unit
offering conducted by the Company consisted of one share of preferred stock and
one share of common stock. Each share of Preferred Stock has been converted, at
the holder's option, into four (4) shares of Common Stock. There are no
outstanding Shares of Preferred Stock at this time and the Company has no
intention of issuing any Preferred Stock.
PLAN OF DISTRIBUTION
The Shares offered herein will be offered on a "best efforts" basis by
Greystone Securities, Inc. in Missouri, Illinois, Arkansas, and Kansas.
Greystone and the Company have entered into a Dealer Agreement providing that
8
<PAGE> 20
Greystone will receive a commission of 5% on each sale. In addition, Greystone
has received an option to purchase up to 133,334 shares of Common stock at $7.50
for a period of five years. Greystone intends to use an advertising budget of
$200,000 for the purpose of holding seminars with current and potential
investors.
THE FIRST $1,000,000 IN PROCEEDS FROM SUBSCRIPTIONS FOR THE SHARES BEING OFFERED
BY THIS MEMORANDUM WILL BE DEPOSITED INTO AN ESCROW ACCOUNT AT CENTRAL TRUST
BANK. THE PROCEEDS WILL BE AVAILABLE TO THE COMPANY UPON THE DEPOSIT OF
$1,000,000 IN THE ESCROW ACCOUNT. IN THE EVENT THE MINIMUM OFFERING IS NOT
ACHIEVED THE FUNDS WILL BE RETURNED TO INVESTORS.
Checks should be made payable to "Mid-American Alliance Corporation."
Subscriptions are subject to acceptance by the Company.
All proceeds with respect to subscriptions that are not accepted by the
Company will be returned to the subscriber without deduction or interest
thereon.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The Company makes forward looking statements from time to time and desires to
take advantage of the "safe harbor" which is afforded such statements under the
Private Securities Reform Act of 1995 when they are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those in the forward-looking statements.
The statements contained in the following "Management's Discussion and Analysis
or Plan of Operation", statements contained in future filings with the
Securities and Exchange Commission and publicly disseminated press releases, and
statements which may be made from time to time in the future by management of
the Company in presentations to shareholders, prospective investors, and others
interested in the business and financial affairs of the Company, which are not
historical facts, are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
set forth in the forward-looking statements. Any projections of financial
performances or statements concerning expectations as to future developments
should not be construed in any manner as a guarantee that such results or
developments will, in fact, occur. There can be no assurance that any
forward-looking statements will be realized or that actual results will not be
significantly different from that set forth in such forward-looking statements.
In addition to the risks and uncertainties of ordinary business operations, the
forward-looking statements of the Company referred to above are also subject to
risks and uncertainties.
RESULTS OF OPERATIONS
The Company commenced full scale marketing of its insurance products in April of
2000. Prior to April of 2000, the Company raised capital through a Missouri
intra-state public stock offering. Accordingly, comparisons of the results of
operations from 1999 to 2000 are not necessarily indicative of the true
operations of the Company.
Total revenues increased by $164,821 during the first six months of 2000 as
compared to the first six months of operations in 1999. Revenues totaled
$249,103 and $84,242 in 2000 and 1999, respectively. The primary source of
revenue has been earnings on invested capital. Investment income for the first
six months of 2000 totaled $198,480 as compared to $83,458 for the first six
months of 1999. Investment income is an integral component of the operations of
life insurance companies. For the first six months of 2000, premium income
totaled $47,298 as compared to $824 for the first six months of 1999. The
increase in premium income is attributed to the commencement of insurance
operations in April of 2000. Revenues totaled $153,706 for the three months
ended June 30, 2000 as compared to $37,013 for the same period in 1999.
For the first six months of 2000, benefits and expenses totaled $570,133 as
compared to $343,706 for the same period in 1999. Life insurance reserves are
established for the payment of death benefits. Reserves are calculated based on
such factors as the insured's age, mortality assumptions and interest rates. The
increase in reserves is recognized in the financial statements as an expense.
The increase in policy reserves for the six months ended June 30, 2000 was
$16,662. During the first six months of 1999, there was no increase in reserves
since there was limited insurance operations. Salaries, wages and employee
benefits totaled $236,904 and $192,216 for the first six months of 2000 and
1999, respectively. Commissions paid on life insurance sales totaled $23,472 for
the first six months of 2000. Commissions for the first six months of 1999
totaled $758. The increase in salaries, wages and employee benefits is
attributed to an increase in employees and employee wage adjustments.
Professional fees increased from $32,087 for the first six
9
<PAGE> 21
months of 1999 to $117,432 for the first six months of 2000. This increase is
related to legal expenses incurred with acquisitions, a non-compete of $40,000
paid in connection with the acquisition of MAC-ARK and accounting fees. Other
operating costs and expenses include costs associated with the beginning of
insurance operations. These costs totaled $119,815 for the first six months of
2000 as compared to $59,748 for the first six months of 1999. Total benefits and
expenses for the three months ended June 30, 2000 and 1999 was $325,648 and
$173,000, respectively. Increases in comparison are related to insurance
operations beginning.
Net loss for the first six months of 2000 totaled $335,915. Income tax expense
incurred during this period totaled $14,885. Income taxes are calculated using a
different method for financial reporting as compared to taxable income reported
to the Internal Revenue Service. The income taxes incurred are based on the
operations of Mid American Century Life Insurance Company of Missouri. There
were no federal income taxes incurred during the first six months of 1999.
FINANCIAL POSITION
Assets at June 30, 2000 totaled $7,595,467 as compared to $6,774,960 at December
31, 1999. The increase in assets is related to additional sales in the Missouri
intra-state public stock offering and insurance operations. Invested assets
decreased from $6,316,737 at December 31, 1999 to $6,062,722 at June 30, 2000.
This decrease is related to the sale and maturity of invested assets being held
in cash equivalents. Certain costs, such as commissions and administration fees,
associated with the sale of life insurance are capitalized and amortized based
on the premium paying period of the related policies. These costs, which are
classified as deferred policy acquisition costs, totaled $492,698 net of
amortization of $2,778 at June 30, 2000. There were no deferred policy
acquisition costs at December 31, 1999. Goodwill associated with the purchase of
Mid American Century Life Insurance Company of Arkansas and the Ken Johnson
Agency totaled $98,381 net of amortization of $40,043 at June 30, 2000. At
December 31, 1999, goodwill totaled $48,052 net of $32,034 of amortization.
Liabilities at June 30, 2000 totaled $375,249 as compared to $75,487 at December
31, 1999. The increase in liabilities is related to insurance operations
commencing in April of 2000. Total policy related liabilities at June 30, 2000
was $363,618 as compared to $18,309 at December 31, 1999.
CASH FLOW AND LIQUIDITY
The insurance operations generally provide adequate cash flow from
premium collections and investment income to meet obligations. Insurance policy
liabilities are generally long term in nature and are paid from future cash
flows. The Company's available for sale investments are readily marketable.
Although there is no present need or intent to dispose of such investments, the
Company could liquidate portions of their investments.
USE OF PROCEEDS
Assuming that all 1,333,334 Shares of this Offering are sold, a total of
$10,000,000 will be raised. That will represent $9,200,000 to Mid-American
Alliance Corporation. The following represents management's best estimate of how
these funds will be used over the next 24 months:
Amount
------
Expenses related to stock offerings $ 800,000
Commissions 500,000
Legal Expenses 15,000
Printing 65,000
Accounting 20,000
Advertising 200,000
---------------
Initial Capitalization of Venture Capital Subsidiary 1,000,000
Initial Capitalization of Bank Holding Company 2,500,000
Increasing Capitalization of Bank Holding Company 2,500,000
Acquisition Proceeds 1,700,000
Working Capital 1,500,000
---------------
Total $ 10,000,000
===============
10
<PAGE> 22
The expenses in the above table are management estimates of material
operating costs over the next 24 months. Actual cost incurred may vary
significantly from the estimates above. Management believes based upon its
existing base of shareholders and discussions with the broker dealer that all or
substantially all of the proceeds will be raised in this offering.
BECAUSE MANAGEMENT DOES NOT HAVE THE ADVANCE ABILITY TO DETERMINE WHETHER THE
MANAGEMENT OF THE VENTURE CAPITAL BUSINESS OR BANK HOLDING COMPANY BUSINESS CAN
BE RECRUITED AND WHETHER APPROPRIATE DEAL FLOW OR LOCATIONS CAN BE FOUND FOR
SUCH BUSINESSES, MANAGEMENT RESERVES THE RIGHT TO REDIRECT THE NET PROCEEDS OF
THE PROPOSED PUBLIC OFFERING ALLOCATED TO THE VENTURE CAPITAL AND BANK HOLDING
COMPANY PORTION OF THE COMPANY'S BUSINESS PLAN FOR ACQUISITION PURPOSES.
DETERMINATION OF OFFERING PRICE
The price of the Shares being offered by this Memorandum has been
determined arbitrarily by the management of the Company and the price bears no
relationship to the assets or the prospects of the Company or any other measure
of value. There is no public market for the Shares and, therefore, the Shares
have no readily ascertainable market value.
The Shares are offered only as a long-term investment for those who can
afford the risk of loss of their entire investment and who can foresee no need
to liquidate their investment in the near future. See "Description of Capital
Stock."
DILUTION
Purchasers of the Shares being offered hereby will pay $7.50 per Share.
As of June 30, 2000, the Company had an aggregate of 4,798,640 Shares
outstanding and a net tangible book value, as reflected on its balance sheet of
$7,544,415, or approximately $1.57 per Share. "Net tangible book value per
Share" represents the Company's total tangible assets less its liabilities,
divided by the number of Shares of common stock outstanding.
After giving pro forma effect to this Offering, the Company will have
an aggregate of 6,131,974 Share outstanding (assuming all 1,333,334 Shares
offered hereby are sold and a net tangible book value of $16,744,415 (assuming
net proceeds of this Offering of $9,200,000) or approximately $2.73 per Share.
New stockholders will experience an immediate dilution in net tangible book
value per Share of $4.77 from the $7.50 per Share purchase price, while the
present stockholders will receive an immediate increase in the net tangible book
value of $1.16 per Share. Such dilution represents the difference between the
offering price per Share and the net tangible book value per Share immediately
after the completion of the Offering. The increase in book value per Share of
common stock held by the current stockholders would be solely attributable to
the cash paid by new stockholders for their Shares.
The following table, which incorporates the following assumptions,
illustrates such dilution per Share in net tangible book value to new investors:
If 1,333,334
Shares are Sold
---------------
Price per Share $ 7.50
Net tangible book value Per Share before Offering 1.57
Increase attributable of sales of Shares 1.16
Pro forma net tangible book value after Offering 2.73
Dilution to new stockholders $ 4.77
The following table summarizes, on a pro forma basis, as of June 30,
2000, the number of Shares previously purchased, the total consideration paid,
and the average price per Share by the existing stockholders and the new
investors purchasing the Shares offered hereby.
11
<PAGE> 23
<TABLE>
<CAPTION>
If 1,333,334 Shares are Sold
----------------------------
Shares Purchased Total Consideration Average Price
Number Percent Number Percent Per Share
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Existing shareholders 4,798,640 78% $ 10,212,000 51% $ 2.13
New investors 1,333,334 22% 10,000,000 49% 7.50
Total 6,131,974 100% $ 20,212,000 100% $ 9.63
</TABLE>
DESCRIPTION OF THE SHARES
DESCRIPTION OF COMMON STOCK OF MID-AMERICAN ALLIANCE CORPORATION
The authorized stock of the Company consists of 8,000,000 shares of
common stock, $.10 par value, and 550,000 shares of preferred stock, $5.00 par
value. As of the date of this Offering, 4,798,640 Shares of common stock are
issued and outstanding. The Company's common stock offered in this Offering is
1,333,334 shares. These shares, when issued, will be fully paid and
nonassessable.
In the event of liquidation, holders of the shares are entitled to
participate equally per share in all assets, if any, of the Company remaining
after the payment of all liabilities. Holders of the shares are entitled to such
dividends as the Board of Directors, in its discretion, may declare out of funds
available therefor.
The holders of the shares are entitled to one vote for each share held
of record in each matter submitted to a vote of stockholders. Cumulative voting
in the election of directors is not allowed and, therefore, the holders of a
majority of the outstanding common stock represented at any meeting at which a
quorum is present will be able to elect all the directors. A majority of the
outstanding shares of stock entitled to vote constitutes a quorum at any
shareholder meeting. There are no preemptive or other subscription rights,
conversion rights, registration or redemption provisions with respect to any
shares of Common Stock.
An investment in the Shares will be illiquid due to the lack of a public trading
market. As discussed above, no market currently exists and no market is expected
to develop as a result of this Offering.
12
<PAGE> 24
OFFICERS AND DIRECTORS
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Scott J. Engebritson 42 Chairman of the Board
Harold D. Woodward 51 President and Director
Roy Cagle 61 Director
Max Cook 46 Director
Betty Hearnes 72 Director
Harry Morley 69 Director
Gary Snadon 59 Director
Jon Sundvold 38 Treasurer/Director
Eric Thompson 56 Director
John Perkins 48 Director
Julie Byrd 33 Secretary
</TABLE>
The directors were elected at the annual shareholders meeting on June
9, 2000 and will serve in this capacity until the next annual meeting of
shareholders. The executive officers serve at the direction of the Board of
directors and were elected at the meeting of the Board on June 9, 2000. The
Chairman, President and Secretary\Treasurer are elected at the annual meeting of
the Board, while other officers are elected by the Board from time to time as
the Board deems advisable. The following is a brief description of the previous
business background of the executive officers and directors.
SCOTT J. ENGEBRITSON:
Mr. Engebritson will not own any of the Company's common shares at the
completion of this offering. Mr. Engebritson will serve as Chairman of the
Board. He will be compensated with a salary of $65,000 per year with such
performance-related bonus payments and other benefits as the Board shall
subsequently determine. Mr. Engebritson will devote up to forty percent of his
time to the Company.
Mr. Engebritson presently serves as Vice-Chairman of the Board of First
Alliance Corporation and First Alliance Insurance Company. Mr. Engebritson has
twenty-two years of experience in the insurance industry. From 1978 to 1884, he
was associated with Liberty American Corporation and Liberty American Assurance
Company as Executive Sales Director and Regional Director of Sales and as
Director of Customer Services. In December of 1984, Mr. Engebritson became
affiliated with United Trust, Inc., an Illinois insurance holding company, where
he served as Regional Director of Sales, Agency Director and Assistant to the
President. In December of 1987, Mr. Engebritson was directly responsible for the
organization of United Income, Inc., an Ohio insurance holding company, where he
served as an organizer, President and Director of United Income, Inc., and
United Security assurance Company, a life insurance subsidiary, through February
of 1993. While President of United Income, Inc., Mr. Engebritson was directly
responsible for the completion of a $17,500,000 initial public offering. In
February 1993, Mr. Engebritson resigned his positions with the United companies
and became an initial organizer and Chairman of the Board of First Alliance
Corporation, a Lexington, Kentucky based financial services holding company.
First Alliance Corporation successfully completed a $13,750,000 initial public
offering in November 1995. Mr. Engebritson has been listed in Who's Who in Life
Insurance since 1988.
HAROLD D. WOODWARD:
13
<PAGE> 25
Mr. Woodward will own 745,000 common shares at the completion of this
offering or approximately 9.9%. Mr. Woodward will serve as the Company's
President and Chief Marketing Officer and will also be a member of the Board of
Directors. He will be compensated with a salary of $80,000 per year with such
performance-related bonus payments and other benefits as the Board shall
subsequently determine. All of Mr. Woodward's time will be devoted to the
Company and its subsidiaries.
Mr. Woodward has seventeen years of experience in the life insurance
industry primarily in sales and sales management. Until 1996, Mr. Woodward was
the Assistant to the President of First Alliance Insurance Company located in
Lexington, Kentucky. Prior to his promotion to Assistant to the President, He
was a Zone Sales Director where, during a public stock offering, he and his zone
sales personnel were directly responsible for selling approximately $4.2 million
of a total offering of $13.75 million. Until April 1993, when he joined First
Alliance Corporation, Mr. Woodward was the Agency Director for United Fidelity,
Inc., Springfield, Illinois, during a public stock offering.
During his sales career, Mr. Woodward has served as an agent, Regional
Director, promoted to top Executive Sales Director, Agency Director and
Assistant to the President for several insurance holding companies and their
life insurance subsidiaries.
He has received numerous sales awards including Man of the Year and
Presidents Council his first year in the insurance business. He has also been
Top Regional Director-1984, Top Executive Sales Director (1985-1992)(multiple
awards) and a member of the Presidents Council(1983-1993) of his various prior
affiliations(multiple awards). Mr. Woodward is also listed in the 2000 Edition
of Who's Who in Executives and Professionals.
JULIE BYRD:
Ms. Byrd was hired on December 13, 1999 to serve as the Company's Vice
President of Administration. On March 14, 2000 she was appointed to serve as the
Company's Executive Secretary. In addition, she serves as Vice President of
Administration and Executive Secretary of Mid American Century Life Insurance
Company.
Effective May 22, 2000 Mid American Century Life Insurance Company, a
wholly owned subsidiary of the Company, acquired Security Alliance Insurance
Company, an Arkansas corporation (f/k/a Mid-American Century Life Insurance
Company). Upon completion of the acquisition Ms. Byrd was elected to the Board
of Directors of that company. In addition, Ms. Byrd was appointed by the Board
to serve as that company's Secretary/Treasurer. Ms. Byrd does not receive any
compensation for her role as Director and Secretary/Treasurer of Security
Alliance Insurance Company.
Effective June 1, 200 the Company joint ventured with its wholly owned
subsidiary Mid American Century Life Insurance Company to acquire the Ken
Johnson Agency, Inc. Upon completion of the acquisition Ms. Byrd was elected to
the Board of Directors of that company. In addition, Ms. Byrd was appointed by
the Board to serve as that company's Secretary/Treasurer. Ms. Byrd does not
receive any compensation for her role as Director and Secretary/Treasurer of Ken
Johnson Agency, Inc.
Ms. Byrd has five years of experience in the life insurance regulatory
field as a Financial Analyst with the Missouri Department of Insurance. As a
Financial Analyst Ms. Byrd was responsible for reviewing and evaluating the
financial condition of domestic and foreign life and health insurance companies
licensed to transact business in Missouri. From 1995 to 1999 Ms. Byrd was an
active member of the Society of Financial Examiners.
Prior to Ms. Byrd's position with the Missouri Department of Insurance
she was with the Missouri Department of Transportation as an Account Specialist.
Her chief responsibility in this position was to prepare the statewide salary
and wage payroll for all employees.
Ms. Byrd received her Bachelor of Science degree in Accounting and
Finance in 1991 from Missouri Valley College. She is compensated with a salary
of $52,500 per year with such performance related bonus payments and other
benefits, as the Board shall determine. Ms. Byrd devotes all of her time to the
Company and its subsidiaries.
ROY CAGLE:
Mr. Cagle is the owner of Roy Cagle & Associates, a life insurance,
group insurance, estate planning and pension marketing agency since 1971. Mr.
Cagle also does Governmental Consulting and lobbying through Roy Cagle
14
<PAGE> 26
& Associates. He is a partner in a real estate development company, Midwest
Investments of Joplin, Missouri. From 1978-1980 he was a stockholder, Director
and Officer of the Citizens State Bank of Galena, Kansas. Mr. Cagle served as a
Missouri State Representative from 1977-1988 during which he was the Minority
Leader (1985-1986). In 1986 and 1987 he was the National Chairman of the
American Legislative Exchange Council ("ALEC"), Washington, D.C. The ALEC is a
bipartisan; business oriented organization of more than 2000 state legislators
from all 50 states did. As National Chairman, Mr. Cagle headed a Board of
Directors of 18 legislators who were House Speakers, Senate Presidents or other
who held leadership positions in their respective states. Mr. Cagle is a member
of the V.F.W.; Masons; Scottish Rite; Shriners; American Legion; Elks;
Fellowship of Christian Athletes; NAIA Distinguished Athletes Association. Mr.
Cagle received his B.S. degree in Education and Psychology from Pittsburg
(Kansas) State University in 1961.
MAX COOK:
Mr. Cook is the President and CEO of the Missouri Bankers Association
and has served in that role since April 1991. Prior to that time, Mr. Cook was
the Senior Vice President of the Texas Bankers Association (1989-1991) and
Senior Vice President of the Oklahoma Bankers Associate (1981-1989). His
extensive banking experience also includes positions of Assistant Vice President
of both The Lincoln Bank and Trust Company of Ardmore, Oklahoma and the Norman
Bank of Commerce, Norman, Oklahoma. Mr. Cook is active in Civic and Charitable
activities serving as a; Member, Board of Directors, Missouri Council on
Economic Education (1992- Present); Chairman, Missouri Council on Economic
Education (1993-1995); Member, Board of Directors, Family Mental Health Center
of Central Missouri (1993-Present), Treasurer since 1995; Member, Board of
Directors, Cole Unit American Cancer Society (1995-1999); Member, Executive
Board, Great Rivers Council Boy Scouts of America (1995-Present) and Board of
Directors, Jefferson City YMCA (1999-present).
Mr. Cook's Professional Activities include; Member, Board of Directors,
Graduate School of Banking of the University of Wisconsin (1991-Present);
Member, Board of Directors, Banking School of the South, LSU (1991-Present);
Member, Communications Council, American Bankers Association (1992-1996);
Member, BankPac Committee, American Bankers Association, (1998-present); Member,
Executive Committee, State Association Division, American Bankers Association (
1992-1996) and (1998-present) ; Chairman, Central States Conference of State
Bankers Associations (1995-1996) and Member of the American Society of
Association Executives, Missouri Society of Association Executives and Member,
Steering Committee, Rural Economic Development Council of Missouri (1994-1996).
Mr. Cook received both his BBA in Management ( 1976) and his MBA in Finance (
1978) from the University of Oklahoma, Norman, Oklahoma.
BETTY COOPER HEARNES:
Mrs. Hearnes currently serves as the Vice -Chairman of the Southeast
Missouri Autism Center and is also on the Board of the Bootheel Counseling
Center. Mrs. Hearnes was elected a State Representative from the 160th District
in February 1979 in a special election and was reelected in 1980, 1982, 1984,
and 1986. In February 1987 she was elected State Chairperson of the Missouri
Democratic party and was the Democrat nominee for governor in 1988. During her
10 years in the Legislature, she served as the Vice-Chairman of the agribusiness
Committee and the Chairman of the Joint Committee on Correctional Institutions
and Problems. She also served on the Agriculture, Public Health and Safety,
Elections, Education, Appropriation-Education, Higher Education and
Transportation Committees. During her years of service in the Legislature, Mrs.
Hearnes either introduced, sponsored or co-sponsored numerous legislation
including the bill which allowed testing for Genetic Diseases, bill establishing
the Poison Control Center, bill establishing the Child Restraint law, and bills
which created the Department of Health and authorized research on Alzheimer's
Disease, Library Networking Bill, Historic Preservation, Election Procedures,
Grandparents Rights. Transfer of College Credits, Regulation of Warehouses,
Protection of Grain for Farmers and numerous bills designed to improve the
correction system. Also, while serving she worked on Mental Health
Appropriations for ten years and was responsible for establishing the Group
Homes in Sikeston. Mrs. Hearnes was awarded the Distinguished Health Legislative
Award in 1987 and has also received an award from the Judicial Conference of
Missouri for her contributions to the advancement of the administration of
justice and from the Missouri Coalition for Alternatives to Incarceration for
her work in corrections. Mrs. Hearnes is heavily involved in both civic and
religious activities and has received numerous recognitions for her service
including being honored with a lifetime membership in the Missouri State
Teachers Association, "Woman of the Year" award from the American Association of
University Women and Outstanding Baptist Woman by the Southern Baptist College
in Walnut Ridge, Arkansas. Additionally, she has served on the Board of
Directors of many civic and religious organizations.
15
<PAGE> 27
Mrs. Hearnes holds honorary doctorates from both Lindenwood College and
Southwest Baptist University. Mrs. Hearnes' husband is the former Governor of
Missouri. During his administration, Mrs. Hearnes was very active including
serving on the Governor's task force on Hunger. Mrs. Hearnes received her B.S.
degree in Education from the University of Missouri, Columbia, in June 1952.
HARRY T. MORLEY:
Mr. Morley is Chairman of the Board and Chief Executive Officer of
Taylor-Morley Homes, a St. Louis based developer and builder of single-family
and multi-family homes. Taylor-Morley is also involved in property management.
Mr. Morley has served in this capacity since 1978. Prior to 1978, Mr. Morley
served as the first President of the St. Louis Regional Commerce and Growth
Association which has become the region's spearhead for economic growth and
development (1973-1978); Assistant Secretary for the U.S. Department of Housing
and Urban Development (HUD) (1970-1973); St. Louis County Director of
Administration and Chief of Staff (1963-1970); Principal in NK & Associates, a
Psychological consulting/recruiting firm (1960-1963); Director of Student
Housing at the University of Denver (1957-1960) and Director of Student Affairs
for Men at Northern Iowa University ( formerly Iowa State Teachers College,
1955-1957). During his career, Mr. Morley has been involved in more than 20
professional activities; many of which involved many years of service and
leadership roles. Some of Mr. Morley's professional activities include; Member,
Board of Directors, of the Home Builders Association of Greater St. Louis, Past
President; Member, Missouri Highway & Transportation Commission (1988-1994)
including the Chairmanship (1992-1994); Member, Board of Directors, U.S. Olympic
Festival Committee (1993-1994); Member, Advisory Board, St. John's Mercy Medical
Center (1991-present); past member, Missouri State Industrial Development Corp.,
(1982-1987); Member, Board of Directors, Laclede's Landing Redevelopment Corp.,
(1976-present); Member, Anti-Drug Abuse Commission (1986-1993); Member, White
House Council on Education (1975-1978) and Past Board Member of the St. Louis
College of Pharmacy, St. Luke's Hospital, the Arts and Education Council and
past Chairman of the Board of the Greater St. Louis Better Business Bureau. Mr.
Morley is listed in Who's Who in America and Who' Who in the Midwest. Mr. Morley
has been the recipient of many professional and civic awards including; the 1994
Fifth Annual John H. Poelker Public Service Award by Coro Midwestern
Center/Thomas F. Latzer award; 1994 Home Builders Association Excellence in
Achievement Award; 1985 National Association of Home Builders MIRM Award (gold
and silver); seventeen time recipient of the Homer Achievement Award for
homebuilding by the Home Builders Association of Greater St. Louis and 1978
Resolutions by the Missouri House of Representatives for Distinguished Service
and by the Missouri Senate for Outstanding Service at the St. Louis Regional
Commerce and Growth Association; Entrepreneur (2000); Past President of the Home
Builders Association of Greater St. Louis; Awarded World-Class Customer
Satisfaction Award by the St. Louis Better Business Bureau (1999); and Taylor
Morley Homes was awarded America's Best Builder by National Association of Home
Builders Builder Magazine (2001).
Mr. Morley received his B.S. Degree in Personnel and Industrial
Management from the University of Missouri-Columbia in 1955 and His Master'
Degree in Educational Psychology from the University of Denver in 1958.
GARY SNADON:
Mr. Snadon is a real estate developer and business owner in Branson,
Missouri. He currently owns the Roark Vacation Resort; Branson Hotline; Club
Roark; Shepherd of the Hills Homestead & Outdoor Theater; Polynesian Princess;
and is a partner in Magical Mansion Inc. Theater all located in Branson. Mr.
Snadon also is the developer of Roark Vacation Resort, Emerald Pointe
Subdivision and Shepherd of the Hills Expressway. Mr. Snadon has also built and
sold several motels and businesses in the Branson area. From 1969 to 1994 he
owned the Branson Farm & Home Savings & Loan. Prior to 1969, he was a football
coach serving as the Head Football Coach & Teacher at the Branson High School
(1965-1969) and as the Head Football Coach & Teacher at Rich Hill, Mo. High
School (1963-1965). Mr. Snadon received the 1987 "Ambassador" award from the
Branson Chamber of Commerce; received the 1993 Community Appreciation Award from
the Tri-Lakes Board of Realtors and was inducted in 1993 into the Springfield,
Mo. Junior Achievement Hall of Fame. Mr. Snadon is active in the Branson Masonic
Lodge, Abou Ben Adhem Shrine (Springfield), Taney County Shrine Club, Ancient &
Accepted Scottish Rite of Free Masonry and the Branson United Methodist Church.
Mr. Snadon receive his B.S. Degree in Education from Kansas State College at
Pittsburg, Kansas in 1962. While at Pittsburg, he was named to the Associated
Press Little All-American Football Team (1961) and was listed in the Who's Who
in American Colleges and Universities (1961 edition).
JON T. SUNDVOLD:
Mr. Sundvold serves as Treasurer of the Company. He is owner of
Sundvold Capital Management a registered investment advisory firm in Columbia,
Missouri. Sundvold Capital Management specializes in portfolio management
16
<PAGE> 28
and the selection of institutional money managers for their clients consisting
of corporations, banks and individuals. From 1988-1997 Mr. Sundvold was employed
as a financial consultant with B.C. Christopher Securities Company. Also, since
1993, Mr. Sundvold has been employed as a college basketball broadcaster with
ESPN, ABC and CBS. From 1983-1992, Mr. Sundvold was a professional basketball
player in the National Basketball Association (NBA). He was a first round draft
choice of the Seattle Supersonics in 1983. While in the NBA, he played with the
Seattle Supersonics, the San Antonio Spurs and the Miami Heat. Mr. Sundvold
still holds the NBA record for three point scoring percentage. Mr. Sundvold is a
Member, Board of Directors, of the First National Bank, Columbia, Missouri;
Member, Board of Directors, of the Childrens Hospital, Columbia; Member of the
Rotary and Member of the Columbia United Methodist Church. Mr. Sundvold received
his BSBA in Finance from the University of Missouri-Columbia in 1983. While at
the University of Missouri, Mr. Sundvold was named to the 1983 All-American
Basketball Team and was All-Conference First Team in both 1982 and 1983.
ERIC THOMPSON:
Mr. Thompson is a professor of Economics at Missouri Valley College in
Marshall, Missouri. In addition, he is the President of B & E Perceptions, Inc.,
a company committed to providing common sense business and economic education to
corporate production line employees and investor education to elementary,
secondary, college students, and adults through Invest Us, an interactive
internet investment simulation. Prior to his current position, Mr. Thompson was
the President of the Missouri Council On Economic Education, a not-for -profit
education organization (1991-1995); Vice President of the Farmer & Traders Bank,
a bank serving rural central Missouri (1989-1989), President & CEO of Hampton
Press Inc., a medical publishing company (1985-1991) and President and Chairman
of the Board of M.F.A., Inc., a Midwestern regional agricultural cooperative,
Chairman of the Board, M.F.A. Oil Company, Chairman of the Board, M.F.A.
Livestock Association (all 1979-1984).
Also, between 1974-1979, Mr. Thompson served as the Manager of
Management Development and Director of Employee Relations with M.F.A., Inc. Mr.
Thompson served in the United States Air Force (1969-1974) where he was a B-52
pilot and aircraft commander. During his service, he flew 188 combat missions.
Mr. Thompson grew up on a diversified 750 acre farm, has managed that farm and
still assists in the family farming operation. Mr. Thompson received both his BA
in Economics from the University of Missouri (1967) and his Master of Science in
Agricultural Economics in 1969.
JOHN PERKINS:
Mr. Perkins is an attorney in the private practice of law specializing
in securities work. He owns Perkins Law Office in Jefferson City, Missouri. He
is a graduate of SMU Law School and has an undergraduate degree in Public
Administration from the University of Missouri. From 1983-1995 he was the
Commissioner of Securities for the State of Missouri. Prior to that he was Chief
of Enforcement in the Missouri Securities Division for two years. Before going
to work at the Missouri Securities Division he was an Assistant Attorney General
in the Consumer Protection Division of the Missouri Attorney General's Office.
In 1991 he served as President of the North American Securities
Administrators Association. He also served on the Board of Directors of that
organization for five years. He served in a number of other roles within that
organization including Chairman of the Enforcement Section, Chairman of the CRD
and Financial Institutions Committees.
Mr. Perkins was the first Chairman of SRD Inc. and was a Board member
of that organization for two years. In 1989 he received his first "Blue Sky
Cube," the highest honor bestowed by the North American Securities
Administrators Association. In 1991, he became the first person to receive a
second "Blue Sky Cube."
EXECUTIVE COMPENSATION
The Board of Directors of the Company has voted that Mr. Scott
Engebritson, Chairman of the Board will be paid a salary of $65,000 per year. It
also has voted that Mr. Harold Woodward, President, will be paid a salary of
$80,000 per year. Julie Byrd will be paid a salary of $52,500 per year. All
Executive Officers may receive such performance-based bonus payments as the
Board of Directors may approve. In addition, Mr. Woodward will receive an
automobile allowance of $600 per month with Mr.Engebritson receiving $400.
Generally, Mr. Woodward and Ms. Byrd will devote 100% of his time to the
operations of the Company while Mr. Engebritson will devote up to 40%.
17
<PAGE> 29
The Directors of the Company, who are not employees of the Company,
will receive $300, plus mileage expenses, for each Board meeting they attend.
The Company has issued options pursuant to a stock option plan totaling
10,000 shares to Julie Byrd, 1,000 shares to Mike Moss, and 1,000 to Jim Moss.
The Stock Option plan has 200,000 shares of common stock in it. These are priced
at $.25 per share. The recipients of the non-transferable option have one year
from the date of the grant to exercise the option. After the exercise of the
option the common stock can not be transferred for two years.
18
<PAGE> 30
SECURITY OWNERSHIP
The following table sets forth information regarding the ownership and
control of the outstanding Shares of the Company's Common Stock, $.10 par value,
as of the date of this Prospectus by each officer and director of the Company,
each person who owns more than 10% of the Shares of the Company, and all
directors and officers as a group.
<TABLE>
<CAPTION>
Stockholder (Affiliation) Number of Percentage
------------------------- Shares Owned of Shares
------------ ---------
<S> <C> <C>
Scott J. Engebritson
(Chairman of Board of Directors) -0- 0.0%
Harold D. Woodward
(President and Director) 745,000 16.0%
Roy Cagle, Director 40,000 .1%
Max Cook, Director 40,000 .1%
Betty Hearnes, Director 40,000 .1%
Harry Morley, Director 40,000 .1%
Gary Snadon, Director 40,000 .1%
Jon Sundvold, Director 40,000 .1%
Eric Thompson, Director 40,000 .1%
John Perkins, Director 40,000 .1%
First Alliance Corporation
(10% or more Stockholder) 725,000 15.0%
All Directors and Officers as a Group 1,100,000 23.0%
</TABLE>
First Alliance Corporation is a financial services holding company
based in Lexington, Kentucky, which wholly owns a life insurance and venture
capital subsidiary. Mr. Engebritson is an officer and director of FAC. It is
possible that in the future, the life insurance subsidiary of the Company could
compete with the FAC life insurance subsidiary.
PRIOR TRANSACTIONS
On or after August 19, 1996 the Company received subscriptions for
3,150,000 shares of its common stock at $.10 per share. One of the subscribers,
Nicholas Monaco of the law firm, Inglish & Monaco of Jefferson City, Missouri,
agreed to provide all organizational, continuing general corporate and insurance
related legal services in exchange for 200,000 shares of stock. Mr. Monaco
provided these services from January of 1996 through April 14, 2000. These
services represent Mr. Monaco's consideration for his shares. Mr. Monaco will
not receive his shares until all restrictions on those shares have been
satisfied.
Another purchaser of 200,000 shares, FTG Corporation, a Missouri
Corporation, was paid $60,000 to surrender its negotiating position for the
Missouri domiciled life insurance company (MAC-MO) the Company agreed to
purchase on September 5, 1996. FTG Corporation had already reached an oral
agreement to acquire the company that Mid-American Alliance Corporation wanted
to acquire to execute its business plan.
All of the Shares purchased for $.10 have been placed in escrow with
the Missouri Securities Division. The stock may not be released from the escrow
for a period of five years.
The Company has repurchased 60,000 shares of common stock which was
sold at $.10 a share. The Company has reserved the right to resell this stock
and an additional 140,000 shares of stock at $.25 a share. These 200,000 shares
19
<PAGE> 31
were used for the creation of a stock option plan which provides a non
transferable option for one year at an exercise price of $.25. After the option
is exercised the stock is restricted for a period of two years.
In April of 1997, the Company completed an offering of 1,562,500 shares
of Common Stock at $1.60 a share in a Regulation D private placement. The
investors in the private placement were primarily the Advisory Board members
from each of Missouri's 114 counties and the City of St. Louis. The majority of
the proceeds from that offering were used to purchase the life insurance
subsidiary.
On April 14, 2000, the Company completed a intrastate public offering
of its shares. It has sold 5,954,000 Shares of common stock in all of its
offerings combined, including conversion of all preferred stock.
AFFILIATED TRANSACTIONS
The Company has an accounting services agreement with First Alliance
Corporation (FAC), which owns approximately 15% of the Company's stock. Those
agreements provide for FAC to provide those services to the Company at a cost of
$1000 per month. The Company has made no loans or loan guarantees and in the
opinion of management has not engaged in any material transactions with
affiliated parties. Any future material affiliated transactions and loans will
be made or entered into on terms that are no less favorable to the Company than
those obtained from unaffiliated third parties. All future material affiliated
transactions and loans, and any forgiveness of loans, must be approved by a
majority of the Company's independent directors who do not have an interest in
the transactions and who had access, at the Company's expense, to the Company's
r independent legal counsel.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Mr. John Perkins, of the Perkins Law Office, 1426 Inglenook Drive,
Jefferson City, Missouri 65109.
ANNUAL REPORTS TO STOCKHOLDERS
The Company will supply annual reports of its financial condition to
all holders of its securities and such reports will contain financial statements
that will be examined and reported upon by the certified public accounting firm
of Kerber Eck & Braeckel, LLP. Such financial statements will be prepared in
accordance with generally accepted accounting principles.
INDEX TO FINANCIAL INFORMATION
The following audited and unaudited financial statements of the Company are
included herein:
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Audited Financial Statements as of
December 31, 1999......................................................................................... F-1
Unaudited Financial Statements as of
June 30, 2000............................................................................................. F-16
</TABLE>
20
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Mid-American Alliance Corporation
We have audited the accompanying consolidated balance sheet of
Mid-American Alliance Corporation (a Missouri corporation) and subsidiary as of
December 31, 1999, and the related consolidated statements of operations,
changes in shareholders' equity, and cash flows for the year ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Mid-American Alliance
Corporation as of December 31, 1997, were audited by other auditors whose report
dated May 8, 1998, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Mid-American Alliance Corporation and subsidiary as of December 31, 1999, and
the consolidated results of their operations and their consolidated cash flows
for the year ended December 31, 1999, in conformity with generally accepted
accounting principles.
/S/ KERBER, ECK & BRAECKEL
Springfield, Illinois
February 18, 2000
F-1
<PAGE> 33
MID-AMERICAN ALLIANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Available-for-sale fixed maturities, at fair value
(amortized cost, $839,550 and $657,616 in
1999 and 1998, respectively) $ 19,527 $ 671,040
Short-term investments 5,282,622 1,533,762
Total investments 6,102,149 2,204,802
Cash and cash equivalents 543,401 1,714,429
Accrued investment income 16,543 14,095
Prepaid expenses 22,729 25,124
Cost in excess of net assets of company acquired (net of
accumulated amortization of $32,034 and $16,017 in 1999 48,052 64,069
and 1998, respectively)
Office furniture and equipment (net of accumulated depreciation
of $35,544 and $23,904 in 1999 and 1998, respectively) 27,561 33,958
Due from agents (net of valuation allowance of $100,237
in 1999 and 1998) 8,804 3,726
Due premiums net of loading 2,388 --
Federal income tax recoverable 459 --
Other assets 2,874 3,731
---------- ----------
Total assets $6,774,960 $4,063,934
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 34
MID-AMERICAN ALLIANCE CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
December 31,
1999 1998
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy and contract liabilities:
Life policy reserves $ 13,309 $ 12,239
Death claims payable 5,000 5,000
----------- -----------
Total policy and contract liabilities 18,309 17,239
Federal income taxes payable:
Current -- 15,941
Deferred (6,808) 4,564
Payables to affiliate 4,529 6,362
Accounts payable 20,970 6,477
Accrued payroll 34,435 --
Reinsurance premium liability 378 --
Other liabilities 3,673 4,218
----------- -----------
Total liabilities 75,486 54,801
Shareholders' equity:
Preferred stock, 8% non-cumulative convertible callable, $5.00
par and liquidation value; 640,000 shares authorized; 281,527
and 133,780 shares outstanding at December 31, 1999 and 1,407,635 668,900
1998, respectively
Common stock, $.10 par value, 7,600,000 shares authorized;
4,514,903 shares issued and 4,796,430 outstanding at
December 31, 1999 and 4,772,500 shares issued and 479,643 490,628
4,906,280 shares outstanding at December 31, 1998
Additional paid in capital 7,128,495 4,633,220
Retained earnings - deficit (2,270,682) (1,760,075)
Less: treasury stock (32,400) (32,400)
Accumulated other comprehensive income (13,217) 8,860
----------- -----------
Total shareholders' equity 6,699,474 4,009,133
----------- -----------
Total liabilities and shareholders' equity $ 6,774,960 $ 4,063,934
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 35
MID-AMERICAN ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Gross premium income $ 5,512 $ 2,824 $ --
Reinsurance premiums ceded (2,032) (1,335) --
Net premium income 3,480 1,489 --
Investment income 222,161 151,117 50,375
Other income -- 1,690 --
--------- --------- ---------
Total revenue 225,641 154,296 50,375
BENEFITS AND EXPENSES
Increase in policy reserves 1,070 (2,245) --
Surrenders -- 4,227 --
Allowance for doubtful accounts -- 100,237 --
Selling, administrative and general 5,977 4,246 --
insurance expenses
Salaries and other compensation expense 418,429 366,586 395,121
Survey fees -- -- 302,767
Professional fees 48,684 61,969 20,786
Advisory board and directors fees 5,000 2,600 3,600
Administrative fees - related party 35,000 24,000 14,000
Rent expense 62,704 43,020 15,596
Interest expense -- 17,673 --
Depreciation expense 11,640 11,010 8,745
Amortization of goodwill and other 16,017 16,017 --
Other operating costs and expenses 140,959 124,415 86,897
--------- --------- ---------
Total benefits and expenses 745,480 773,755 847,512
LOSS BEFORE INCOME TAX EXPENSE (519,839) (619,459) (797,137)
--------- --------- ---------
Income tax expense (9,232) 15,941 --
--------- --------- ---------
NET LOSS $(510,607) $(635,400) $(797,137)
========= ========= =========
NET LOSS PER COMMON SHARE-BASIC AND DILUTED $ (0.11) $ (0.13) $ (0.19)
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 36
MID-AMERICAN ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
PREFERRED STOCK:
Balance, beginning of period $ 668,900 $ 92,500 $ --
Sale of shares in public offering (147,747 shares in
1999 and 115,280 in 1998) 738,735 576,400 92,500
----------- ----------- -----------
Balance, end of period 1,407,635 668,900 92,500
COMMON STOCK:
Balance, beginning of period 490,628 479,100 347,320
Sale of shares in private placement at $1.60 per
share (1,239,300 in 1997) -- -- 123,930
Sale of 60,000 shares at $.40 per share -- -- 6,000
Sale of shares in public offering (147,750, 115,280
and 18,500 shares in 1999, 1998 and 1997) 14,775 11,528 1,850
Refund of shares (257,600 shares at $.10 per share
in 1999) (25,760) -- --
----------- ----------- -----------
Balance, end of period 479,643 490,628 479,100
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period 4,633,220 2,715,817 473,849
Sale of shares in private placement at $1.60 per share
(1,239,300 shares in 1997) -- -- 1,858,950
Sale of 60,000 shares at $.40 per share and accrual of
compensation expense at $1.20 per share -- -- 90,000
Sale of preferred and common stock in public offering
(147,747, 115,280 and 18,500 in 1999, 1998
and 1997) 2,940,165 2,294,072 368,150
Refund of shares (11,600 shares in 1999) (17,400) -- --
Cost of stock offering (427,490) (376,669) (75,132)
----------- ----------- -----------
Balance, end of period 7,128,495 4,633,220 2,715,817
RETAINED EARNINGS-DEFICIT:
Balance, beginning of period (1,760,075) (1,124,675) (327,538)
Net loss (510,607) (635,400) (797,137)
----------- ----------- -----------
Balance, end of period (2,270,682) (1,760,075) (1,124,675)
TREASURY STOCK:
Balance at beginning of period (32,400) (8,400) --
Purchase of common shares at cost (60,000 shares in
1998 and 84,000 shares in 1997) -- (24,000) (8,400)
----------- ----------- -----------
Balance at end of period (32,400) (32,400) (8,400)
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Balance, beginning of period 8,860 -- --
Net unrealized gain(loss) on available-for-sale
securities (22,077) 8,860 --
----------- ----------- -----------
Balance, end of period (13,217) 8,860 --
----------- ----------- -----------
Total Shareholders' Equity $ 6,699,474 $ 4,009,133 $ 2,154,342
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 37
MID-AMERICAN ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (510,607) $ (635,400) $ (797,137)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 11,640 11,010 8,745
Non-cash compensation expense -- -- 72,000
Amortization of goodwill 16,017 16,017 --
Amortization of bond premium 8,690 10,064 --
Provision for doubtful agent accounts -- 100,237 --
Changes in operating assets and liabilities:
Due from agents (5,078) (94,488) (9,475)
Rent deposits -- -- --
Prepaid expenses 2,395 (12,401) 7,569
Accrued investment income (2,448) (1,485) --
Federal income tax recoverable (459) -- --
Due premiums (2,388) -- --
Other assets 857 6,685 (489)
Accounts payable and other liabilities 14,493 (12,359) 8,966
Commissions and salaries payable 34,435 -- --
Accounts payable to affiliate (1,833) (8,010) (19,427)
Life policy reserves 1,070 (2,245) --
Current taxes payable (15,941) 15,941 --
Other liabilities (169) 2,045 --
----------- ----------- -----------
Net cash used in operating activities (449,326) (604,389) (729,248)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid to acquire Mid American Century Life
Life Insurance Company (net of cash acquired
of $1,570,469) -- -- (281,811)
Purchase of fixed maturities (490,625) -- --
Maturity of fixed maturities 300,000 -- --
Short-term investments acquired, net (3,748,860) (1,533,762) --
Capital expenditures (5,243) (22,535) (10,380)
----------- ----------- -----------
Net cash used in investing activities (3,944,728) (1,556,297) (292,191)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable -- (375,150) --
Proceeds from public stock offering 3,650,516 2,882,000 462,500
Proceeds from private stock offering -- -- 2,006,880
Cost of stock offerings (427,490) (376,669) (75,132)
Purchase of treasury stock -- (24,000) (8,400)
----------- ----------- -----------
Net cash provided by financing activities 3,223,026 2,106,181 2,385,848
----------- ----------- -----------
Net increase (decrease) in cash (1,171,028) (54,505) 1,364,409
Cash and cash equivalents at beginning of period 1,714,429 1,768,934 404,525
----------- ----------- -----------
Cash and cash equivalents at end of period $ 543,401 $ 1,714,429 $ 1,768,934
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 38
MID-AMERICAN ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Mid-American Alliance Corporation (the "Company") was incorporated in Missouri
on May 1, 1996 for the primary purpose of forming, owning and managing life
insurance companies. Since incorporation, the Company has been involved in the
sale of common stock to acquire a life insurance subsidiary and to provide
working capital. The Company is raising $16,000,000 through its in-process
Missouri, intrastate public stock offering which commenced on October 14, 1997.
The Company is offering Units consisting of one share of 8% non-cumulative
convertible, callable, $5.00 par and liquidation value preferred stock and one
share of $.10 par value voting common stock for a total Unit cost of $25.00. The
offering is scheduled to be completed on April 16, 2000.
2. ACQUISITION OF MID AMERICAN CENTURY LIFE INSURANCE COMPANY
On December 31, 1997, the Company acquired all outstanding shares of Mid
American Century Life Insurance Company ("MACLIC"), an insurance company
domiciled in the state of Missouri. The acquisition was accounted for as a
purchase, with the results of MACLIC operations being included in the
consolidated statements since the date of acquisition.
The aggregate purchase price for the acquisition was $2,317,430, including net
costs associated with the acquisition of $105,000 ($90,000 of which were
incurred during 1996). The purchase price was allocated to assets acquired of
$2,257,886 and liabilities assumed of $20,542, based upon their fair values as
of the acquisition date, and resulted in goodwill of $80,086.
The acquisition was financed with the working capital of the Company and with a
note payable of $375,150. The note was retired on June 29, 1998.
3. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") which, for
MACLIC, differ from statutory accounting practices prescribed or permitted by
the Missouri Department of Insurance ("MDI"). The Company was in the development
stage until the purchase of MACLIC.
Certain prior year amounts have been reclassified to conform with the 1999
presentation. These reclassifications had no effect on the Company's previously
reported net loss or shareholder's equity.
PRINCIPALS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and MACLIC. Operations of MACLIC prior to December 31, 1997, the date of
acquisition, are not included in the consolidation. All inter-company accounts
and transactions are eliminated in consolidation.
MANAGEMENT'S ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes. As
more information becomes known, actual results could differ from those
estimates.
F-7
<PAGE> 39
MID-AMERICAN ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments with maturities
of three months or less at the date of purchase and are carried at cost which
approximates fair value.
INVESTMENTS
The Company classifies all of its fixed maturity investments as
available-for-sale. Available-for-sale fixed maturities are carried at fair
value with unrealized gains and losses, net of applicable taxes, reported in
other comprehensive income.
Short-term investments, which consist of certificates of deposit and treasury
bills with a maturity of three months to one year at the date of purchase, are
carried at cost which approximates fair value.
COST IN EXCESS OF NET ASSETS OF COMPANY ACQUIRED (GOODWILL)
The goodwill of $80,086, which resulted from the purchase of MACLIC (see note
2), is being amortized on a straight line basis over five years. Accumulated
amortization as of December 31, 1999 totals $32,034.
OFFICE FURNITURE AND EQUIPMENT
Office furniture and equipment is recorded at cost less accumulated depreciation
using the 200% declining balance method over the estimated useful life of the
respective assets. The useful lives of these assets ranges between three to
seven years.
OFFICE LEASE
The Company moved its home office in May of 1998 from 2419 Hyde Park Road to 813
West Stadium Blvd, where the Company leases approximately 5,403 square feet of
office space. A three year contract was signed with Jordan-Towne Park, beginning
on May 1, 1998 and ending on April 1, 2001. Under the terms of the lease, annual
rent expense is $56,736. In 1997, the company leased approximately 1,835 square
feet of office space, where the annual rent expense was $15,596.
FUTURE POLICY BENEFITS
The liabilities for future policy benefits on the Company's life insurance
policies are computed using the net level premium method and assumptions as to
investment yields, mortality, withdrawals and other assumptions, modified as
necessary to reflect anticipated trends and to include provisions for possible
unfavorable deviations.
FEDERAL INCOME TAXES
The Company used the liability method of accounting for income taxes. Deferred
income taxes are provided for cumulative temporary differences between balances
of assets and liabilities determined under generally accepted accounting
principles and balances determined for tax reporting purposes.
F-8
<PAGE> 40
MID-AMERICAN ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMMON AND PREFERRED STOCK
The common stock is fully-paid and non-assessable, has a $.10 par value, with
dividend rights subject to the prior rights of the holders of preferred stock
and has full voting rights. The preferred stock has no voting rights, has a par
and liquidation value of $5.00 per share of which dividends, if and when
declared, will be paid at the rate of eight percent (8%) of the par value, and
is convertible into four (4) shares of common stock until six months after the
completion or termination of the public offering, and if not converted by that
date, is subject to call by the Company at $25 per share.
All shareholder rights conferred by the Company's Articles and By-Laws shall
vest in the subscribers immediately upon acceptance of the subscription by the
Company. These rights shall include, inter alia, voting rights, liquidation and
other preferences, etc. However, the actual issuance of ownership certificates
will not occur until six months after the offering is completed or terminated.
Accordingly, the stock sold in the public offering is recorded as outstanding
and not issued (281,527 shares as of December 31, 1999 and 133,780 shares as of
December 31, 1998). Additionally, the share certificates issued will not be
tradeable for nine months after the completion or termination of the offering.
EARNINGS PER SHARE
Basic and diluted earnings per share are calculated in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." All
earnings and losses per share amounts for all periods have been presented to
conform with the requirements of SFAS 128.
Net loss per common share is calculated using the weighted average number of
common shares outstanding. Initial organizer shares totaling 3,150,000 are
considered to be outstanding since inception. The 1,562,500 shares of common
stock sold in private placement has been outstanding since August 31, 1997. The
60,000 shares of common stock (see note 4) are considered outstanding from
December of 1997 through July of 1998. Shares sold during the public offering
are considered to be outstanding for one half of the month in which they were
sold. Accordingly, the weighted average common shares outstanding at December
31, 1999, 1998, and 1997 was 4,629,012, 4,820,478, and 4,226,494 respectively.
4. ISSUANCE OF COMMON SHARES AT $.40 PER SHARE
During 1997, the Company issued 60,000 shares of authorized but unissued common
stock at $.40 per share. This transaction occurred after the private placement
offering was completed and before the public stock offering commenced. The
difference between the cost per share of stock sold in the private placement
($1.60) and issuance of this common stock ($.40) is recognized as compensation
expense, totaling $72,000 or $1.20 per share, in the accompanying Consolidated
Statements of Operations for the year ended December 31, 1997. In July of 1998,
these 60,000 shares were repurchased by the Company at cost ($.40 per share) and
are currently held in treasury.
5. REFUND ON STOCK
During 1999, stock issued to core sales representatives who subsequently left
the company was refunded. These representatives purchased shares as part of
their commitment to the company. Mid American refunded their investment in stock
at the original purchase price. A total of 257,600 shares were refunded.
F-9
<PAGE> 41
MID-AMERICAN ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. INVESTMENTS
The amortized cost and fair value of investments in fixed maturities at December
31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. Government Bonds:
December 31, 1999 $ 839,550 $ - $ 20,023 $ 819,527
December 31, 1998 657,616 13,424 - 671,040
</TABLE>
The amortized cost and fair value of fixed maturities at December 31, 1999 by
contractual maturity are shown below:
Fair
Amortized Cost Value
---------------- ---------------
Due in one year or less $ - $ -
Due after five years through ten years 839,550 819,527
---------------- ---------------
Total $839,550 $ 819,527
================ ===============
All of the Company's investments in fixed maturities have been placed on deposit
under custodial agreements to meet MDI regulatory requirements. The following
are the components of net investment income:
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Fixed maturities $ 38,602 $ 41,039 $ -
Short-term and other investments 183,559 110,078 50,375
-------------- ------------- -------------
Investment income $ 222,161 $ 151,117 $ 50,375
============== ============= =============
</TABLE>
7. CONCENTRATIONS OF CREDIT RISK
Credit risk is limited by investing primarily in securities of the U.S.
government and of U.S. government agencies. The Company maintains its cash
balances in one financial institution located in Jefferson City, Missouri. These
balances are insured by the Federal Deposit Insurance Corporation up to
$100,000. At December 31, 1999, uninsured amounts held at this financial
institution total $153,264. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk.
F-10
<PAGE> 42
MID-AMERICAN ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. DUE FROM AGENTS
Due from agents consists of amounts advanced to agents to provide for personal
expenses and is expected to be collected from future commissions from the
in-process public stock offering. Due to the uncertainty of the Company's
ability to collect the entire outstanding balance, the Company maintained a
valuation allowance of $100,237 at December 31, 1999 and 1998.
9. FEDERAL INCOME TAXES
The Company does not file a consolidated federal income tax return with MACLIC.
MACLIC is taxed as a life insurance company under the provisions of the Internal
Revenue Code and is ineligible to file a federal consolidated income tax return
with the Company before 2003. Federal income tax expense for the years ended
December 31, 1999 and 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
--------------- -------------- -------------
<S> <C>
Current federal income tax expense (credit) $ (9,232) $ 15,941 $ -
</TABLE>
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate of 34% as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
---------------- --------------- ---------------
<S> <C> <C> <C>
Federal income tax benefit at statutory rate $ (176,746) $ (210,616) $ (271,027)
Small life insurance company deduction (48,408) (26,489) -
Increase in NOL valuation allowance 188,758 245,697 271,027
Surtax exemptions (6,132) (6,652) -
Goodwill and other intangible assets 5,446 5,446 -
Other 27,850 8,555 -
---------------- --------------- ---------------
Federal income tax expense $ (9,232) $ 15,941 $ -
================ =============== ===============
</TABLE>
Deferred federal income taxes reflect the impact of "temporary differences"
between the amount of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations.
F-11
<PAGE> 43
MID-AMERICAN ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. FEDERAL INCOME TAXES (CONTINUED)
Significant components of the Company's net deferred tax liability are as
follows:
December 31,
1999 1998
--------- ---------
Deferred tax liability:
Net unrealized investment gains $ (6,808) $ 4,564
--------- ---------
Total deferred tax liability (6,808) 4,564
Deferred tax asset:
Net operating loss carry forward 816,844 614,508
Alternative minimum tax credit carry forward -- 10,689
--------- ---------
Total deferred tax asset 816,844 625,197
Valuation allowance (816,844) (625,197)
--------- ---------
Net deferred tax asset -- --
--------- ---------
Net deferred tax liability $ (6,808) $ 4,564
========= =========
The Company had net operating loss carryforwards of approximately $2,402,000,
expiring between 2011 and 2019. A net deferred tax asset has not been
established for these net operating loss carryforwards. Federal income taxes
paid during 1999 were $5,520. There were no federal income taxes paid in 1998 or
1997.
10. SHAREHOLDERS' EQUITY AND STATUTORY ACCOUNTING PRACTICES
MACLIC prepares its statutory-basis financial statements in accordance with
statutory accounting practices ("SAP") prescribed or permitted by the MDI.
Currently, Prescribed statutory accounting practices include state insurance
laws, regulations, and general administrative rules, as well as the National
Association of Insurance Commissioners ("NAIC") Accounting Practices and
Procedures Manual and a variety of other NAIC publications. Permitted statutory
accounting practices encompass all accounting practices that are not prescribed;
such practices may differ from state to state, may differ from company to
company within a state, and may change in the future. The NAIC is in the process
of codifying SAP ("Codification"). Codification will change, to some extent,
prescribed SAP and may result in changes to the accounting practices that MACLIC
uses to prepare its statutory-basis financial statements. Codification, which
was approved by the NAIC in 1998, will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly, before Codification
becomes effective for MACLIC, the MDI must adopt Codification as the prescribed
basis of accounting on which domestic insurers must report their statutory-basis
results to the MDI. At this time it is unclear whether the MDI will adopt
Codification. However, management believes that the impact of Codification will
not be material to MACLIC's statutory-basis financial statements.
F-12
<PAGE> 44
MID-AMERICAN ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. SHAREHOLDERS' EQUITY AND STATUTORY ACCOUNTING PRACTICES (CONTINUED)
Net income for 1999 and 1998 and capital and surplus at December 31, 1999 and
1998 for the Company's insurance operations as reported in these financial
statements prepared in accordance with GAAP as compared to amounts reported in
accordance with SAP prescribed or permitted by the MDI are as follows:
<TABLE>
<CAPTION>
GAAP SAP
Net Capital and Net Capital and
Income Surplus Income Surplus
------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
1999 $ 84,501 $ 6,051,692 $ 93,206 $ 6,041,691
1998 84,563 2,325,157 114,745 1,927,987
</TABLE>
Principal differences between GAAP and SAP include: a) costs of acquiring new
policies are deferred and amortized for GAAP; b) benefit reserves are calculated
using more current assumptions relating to investments, mortality and
withdrawals for GAAP; c) deferred income taxes are provided for GAAP; d)
statutory asset valuation reserves are not required for GAAP; and e)
available-for-sale fixed maturity investments are reported at fair value with
unrealized gains and losses reported as a separate component of shareholders'
equity for GAAP.
Statutory restrictions limit the amount of dividends which may be paid by MACLIC
to the Company. Generally, dividends during any year may not be paid without
prior regulatory approval, in excess of the lesser of (a) 10% of statutory
shareholder's surplus as of the preceding December 31, or (b) statutory net
operating income for the preceding year. In addition, MACLIC must maintain the
minimum statutory capital and surplus, $1,200,000, required for life insurance
companies domiciled in Missouri.
The MDI imposes on insurance enterprises minimum risk-based capital ("RBC")
requirements that were developed by the NAIC. The formulas for determining the
amount of RBC specify various weighing factors that are applied to financial
balances or various levels of activity based on the perceived degree of risk.
Regulatory compliance is determined by ratio (the "Ratio") of the enterprises
regulatory total adjusted capital, as defined by the NAIC, to its authorized
control level RBC, as defined by the NAIC. Enterprises below specific trigger
points or ratios are classified within certain levels, each of which requires
specified corrective action. MACLIC has a Ratio that is in excess of the minimum
RBC requirements; accordingly, MACLIC meets the RBC requirements.
11. REINSURANCE
To minimize the risk of claim exposure to surplus, the Company retains a maximum
of $50,000 of risk on individual life insurance. Reinsurance is provided for the
ten year term product (the Company's only existing product) through Optimum RE,
an A+ rated reinsurance company. The retention limit on the ten year term
product is $50,000. At December 31, 1999, MACLIC had $2,198,000 of insurance
in-force and $1,754,000 in reinsurance ceded. At December 31, 1998, MACLIC had
$998,000 of insurance in-force and $640,000 in reinsurance ceded. To the extent
the reinsurance company would be unable to meet its obligations under the
reinsurance agreement, the Company would remain primarily liable for the entire
amount of risk.
F-13
<PAGE> 45
MID-AMERICAN ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. RELATED PARTY TRANSACTIONS
First Alliance Corporation ("FAC") is a financial services holding company based
in Lexington, Kentucky. FAC is a shareholder of the Company and owns 725,000
shares (or 15%) of the Company's outstanding common stock at December 31, 1999.
Upon completion of the Company's in-process public stock offering on April 16,
2000, FAC will own approximately 12% of the Company's outstanding common stock.
Two officers and directors of FAC are also officers and directors of the
Company. Additionally, one officer and director of FAC is a shareholder of the
Company.
Effective September 1, 1996, the Company's Board of Directors voted to enter
into an administrative services agreement with FAC whereby FAC provides
investment management, data processing, accounting and reporting services to the
Company. The agreement is in effect until either party gives 90 days written
notice of termination. Under the terms of the agreement, the Company initially
paid FAC a monthly fee of $1,000. Effective November 1, 1997, this fee was
increased to $2,000 with the commencement of the public offering. Effective
February 1, 1999, the fee was increased to $3,000 per agreement of both
companies. During 1999, 1998, and 1997, the Company incurred expenses in
connection with this agreement of $35,000, $24,000, and $14,000, respectively.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of financial instruments, and the methods and assumptions used
in estimating their fair values, are as follows:
FIXED MATURITIES
Fixed maturities are carried at fair value in the accompanying consolidated
balance sheets. The fair value of fixed maturities are based on quoted market
prices. At December 31, 1999 and 1998, the fair value of fixed maturities was
$819,527 and $671,040, respectively.
SHORT-TERM INVESTMENTS
The carrying amount of short-term investments approximates their fair values. At
December 31, 1999 and 1998, the fair value of short-term investments was
$5,282,622 and $1,533,762, respectively.
CASH AND CASH EQUIVALENTS
The carrying values of cash and cash equivalents approximates their fair values.
At December 31, 1999 and 1998, the fair value of cash and cash equivalents was
$543,401, and $1,714,429, respectively.
F-14
<PAGE> 46
MID-AMERICAN ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. COMPREHENSIVE INCOME
The components of comprehensive income along with the related tax effects are
presented for 1999, 1998 and 1997 as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
--------------- ---------------- ---------------
<S> <C> <C> <C>
Unrealized gain on available-for-sale securities:
Unrealized holding gains arising during the period $ (28,885) $ 13,424 $ -
Tax benefit (expense) 6,808 (4,564)
Other comprehensive loss (22,077) 8,860 -
--------------- ---------------- ---------------
Net loss (510,607) (635,400) (797,137)
Other comprehensive income, net of tax effect:
Unrealized investment gains (22,077) 8,860 -
--------------- ---------------- ---------------
Comprehensive loss $ (532,684) $ (626,540) $ (797,137)
=============== ================ ===============
Net loss per common share-basic and diluted $ (0.12) $ (0.13) $ (0.19)
=============== ================ ===============
</TABLE>
15. SEGMENT INFORMATION
The operations of the Company and its subsidiaries have been classified into two
operating segments as follows: life insurance operations and corporate
operations. Segment information as of December 31, 1999, 1998 and 1997 and for
the periods then ended is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Life insurance operations $ 105,983 $ 118,531 $ --
Corporate operations 119,658 35,765 50,375
----------- ----------- -----------
Total $ 225,641 $ 154,296 $ 50,375
=========== =========== ===========
Income (loss) before income taxes:
Life insurance operations $ 75,268 $ 92,004 $ --
Corporate operations (595,107) (711,463) (797,137)
----------- ----------- -----------
Total $ (519,839) $ (619,459) $ (797,137)
=========== =========== ===========
Assets:
Life insurance operations $ 6,097,645 $ 2,373,915 $ 2,257,886
Corporate operations 677,315 1,690,019 326,471
----------- ----------- -----------
Total $ 6,774,960 $ 4,063,934 $ 2,584,357
=========== =========== ===========
Depreciation and amortization expense:
Life insurance operations $ -- $ -- $ --
Corporate operations 27,657 27,027 8,745
----------- ----------- -----------
Total $ 27,657 $ 27,027 $ 8,745
=========== =========== ===========
</TABLE>
F-15
<PAGE> 47
MID AMERICAN ALLIANCE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
June 30, 2000 1999
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments:
Available-for-sale fixed maturities, at fair value $5,219,836 $ 819,527
(amortized cost of $5,245,787 and $839,550
in 2000 and 1999, respectively)
Equity securities (cost of $35,000 in 2000) 35,000 --
Policy loans 2,661 --
Short-term investments 805,225 5,497,210
---------- ----------
Total investments 6,062,722 6,316,737
Cash and cash equivalents 734,608 328,813
Accrued investment income 55,189 16,543
Prepaid expenses 20,025 22,729
Intangible asset (net of accumulated amortization of $2,778) 492,698 --
Investment in real estate 51,000 --
Goodwill, net of accumulated amortization of $40,043 and 98,381 48,052
$32,034 in 2000 and 1999, respectively
Office furniture and equipment, less accumulated 24,214 27,561
depreciation of $43,970 and $35,544 in 2000
and 1999, respectively
Advances to agents (less allowance for bad debts of $100,237 in 48,912 8,804
2000 and 1999)
Due premiums 4,830 2,388
Other assets 2,888 3,333
---------- ----------
Total assets $7,595,467 $6,774,960
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-16
<PAGE> 48
MID AMERICAN ALLIANCE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
December 31,
June 30, 2000 1999
------------------- ------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy and contract liabilities:
Life policy reserves (net of reinsurance ceded reserves of $ 188,923 $ 13,309
$1,867 and $4,076 in 2000 and 1999, respectively)
Deposits on pending policy applications 169,695 --
Claims payable 5,000 5,000
----------- -----------
Total policy and contract liabilities 363,618 18,309
Payable to affiliates 5,213 5,043
Federal income taxes payable:
Current 126 --
Deferred (8,823) (6,808)
Commissions, salaries, wages and benefits payable -- 34,435
Accounts payable and accrued expenses 12,080 20,970
Other liabilities 3,036 3,538
Total liabilities 375,250 75,487
Shareholders' equity:
Preferred stock, 6% non-cumulative convertible 1,593,700 1,407,635
callable, $5.00 par and liquidation value; 640,000 shares
authorized; 318,740 and 281,527 issued and outstanding at
June 30, 2000 and December 31, 1999, respectively
Common stock, no par value, 7,600,000 shares 482,864 479,643
authorized; 4,828,640 shares issued and outstanding at June
30, 2000 and 4,796,430 shares issued and outstanding at
December 31, 1999
Additional paid in capital 7,799,780 7,128,493
Retained earnings - deficit (2,606,599) (2,270,682)
Treasury shares held at cost (144,000 shares in 2000 and 1999) (32,400) (32,400)
Accumulated other comprehensive income (17,128) (13,216)
----------- -----------
Total shareholders' equity 7,220,217 6,699,473
----------- -----------
Total liabilities and shareholders' equity $ 7,595,467 $ 6,774,960
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-17
<PAGE> 49
MID AMERICAN ALLIANCE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended June 30, Three months ended June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Premium income $ 47,298 $ 824 $ 45,888 $ (1,235)
Net investment income 198,480 83,458 104,496 38,248
Other income 3,325 -- 3,322 --
--------- --------- --------- ---------
Total revenue 249,103 84,282 153,706 37,013
BENEFITS AND EXPENSES
Increase in policy reserves 16,662 -- 17,092 (2,090)
Commissions 23,472 758 23,472 --
Salaries, wages and employee benefits 236,904 192,216 103,173 99,310
Professional fees 117,432 32,087 93,108 15,937
Administrative fees - related party 12,000 17,000 3,000 9,000
Rent expense 28,366 28,366 14,183 14,183
Depreciation and amortization expense 15,482 13,531 9,174 6,792
Other operating costs and expenses 119,815 59,748 62,446 29,868
--------- --------- --------- ---------
Total benefits and expenses 570,133 343,706 325,648 173,000
LOSS BEFORE INCOME TAX EXPENSE (321,030) (259,424) (171,942) (135,987)
Income tax expense 14,885 -- 3,515 (3,800)
NET LOSS $(335,915) $(259,424) $(175,457) $(132,187)
========= ========= ========= =========
NET LOSS PER COMMON SHARE - BASIC AND
DILUTED $ (0.07) $ (0.05) $ (0.04) $ (0.03)
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
F-18
<PAGE> 50
MID AMERICAN ALLIANCE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Six months ended June 30,
2000 1999
------------------ ------------------
OPERATING ACTIVITIES: (Unaudited) (Unaudited)
<S> <C> <C>
Net loss $ (335,915) $ (259,424)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for depreciation 8,426 5,522
Amortization of premium and accretion of discount on fixed 2,778 --
maturity investments
Other amortization (2,494) 8,009
Increase in accrued investment income (38,646) (1,296)
Decrease (increase) in prepaid expenses 2,704 (769)
Increase in policy loans (2,661) --
Increase in premiums due (2,442) --
Increase in agent advances (40,107) (9,355)
Increase in other assets 446
Increase in policy reserves 175,614 --
Increase in deposits on pending policy applications 169,695 --
Increase in federal income tax payable 126 --
Increase (decrease) in commissions, salaries, wages and benefits (34,435) --
payable
Increase in payable to affiliate 170
Increase (decrease) in accounts payable to affiliate -- --
Decrease in accounts payable, accrued expenses and other liabilities (9,389) (331)
----------- -----------
Net cash used in operating activities (106,130) (257,644)
INVESTING ACTIVITIES:
Short-term investments sold/acquired (net) 4,691,985 (1,643,349)
Purchase of available-for-sale fixed maturities (5,691,686) --
Sale or maturity of available-for-sale fixed maturities 1,295,952 --
Purchase of equity securities (35,000) --
Purchase price paid for Security Alliance in excess of cash acquired (58,338) --
Purchase price paid for Ken Johnson Agency in excess of cash (495,476) --
acquired
Purchase of furniture and equipment (5,080) (2,530)
----------- -----------
Net cash used in investing activities (297,643) (1,645,879)
FINANCING ACTIVITIES:
Proceeds from sale of preferred stock 186,065 324,085
Proceeds from sale of common stock 740,760 1,296,340
Cost of stock offerings (117,257) (185,530)
----------- -----------
Net cash provided by financing activities 809,568 1,434,895
Increase (decrease) in cash and cash equivalents 405,795 (468,628)
Cash and cash equivalents, beginning of period $ 328,813 $ 714,429
----------- -----------
Cash and cash equivalents, end of period $ 734,608 $ 245,801
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-19
<PAGE> 51
MID-AMERICAN ALLIANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information. 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 of the results for the interim periods have been included. Certain
financial information which is normally included in financial statements
prepared in accordance with generally accounting principles, but which is not
required for interim reporting purposes, has been omitted.
2.) Subsidiary Operations
The Company's subsidiaries, Mid American Century Life Insurance Company of
Missouri ("MAC-MO"); Security Alliance Life Insurance Company ("SAL") (formerly
known as Mid American Century Life Insurance Company of Arkansas) and the Ken
Johnson Agency ("KJA"), are included in the financial information. MAC-ARK and
KJA are included from the dates of acquisition, May 22, 2000 and June 1, 2000.
MAC-MO is wholly owned by the Company and SAL is wholly owned by MAC-MO. The
Company owns sixty percent of KJA while MAC-MO owns forty percent of KJA.
3.) Comprehensive Income
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Unrealized gain on available-for sale
securities
Unrealized holding gains/(losses)
during the period $ (8,609) $ -- $ 25,951) $ 13,424)
Tax benefit/(expense) (111) -- 8,823 4,564
--------- --------- --------- ---------
Other comprehensive income $ (8,720) $ -- $ (17,128) $ 8,860)
--------- --------- --------- ---------
Net income/(loss) $(208,677) $(120,910) $(335,915) $(259,424)
Other comprehensive income/(loss)
net of tax effect:
Unrealized investment gains/(loss) (8,720) -- (17,128) (8,860)
--------- --------- --------- ---------
Comprehensive income/(loss) $(217,397) $(120,910) $(353,043) $(268,284)
--------- --------- --------- ---------
Net income/(loss) per common
share-basic and diluted $ (0.04) $ (0.02) $ (0.07) $ (0.05)
--------- --------- --------- ---------
</TABLE>
F-20
<PAGE> 52
MID-AMERICAN ALLIANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.) Segment Information
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Life and annuity insurance 144,082 15,840 232,760 47,457
Corporate 9,575 21,173 16,343 36,825
-------- -------- -------- --------
Total 153,657 37,013 249,103 84,282
-------- -------- -------- --------
Income/(Loss) before income taxes
Life and annuity insurance 34,909 18,620 111,495 43,286
Corporate (228,795) (203,938) (432,525) (302,710)
-------- -------- -------- --------
Total (193,886) (185,318) (321,030) (259,424)
-------- -------- -------- --------
Depreciation and amortization expense:
Life and annuity insurance 2,866 -- 2,866 --
Corporate 6,308 6,792 12,616 13,531
-------- -------- -------- --------
Total 9,174 6,792 15,482 13,531
-------- -------- -------- --------
</TABLE>
Segment asset information as of June 30, 2000 and December 31, 1999
Assets:
Life and annuity insurance 7,010,804 2,417,706
Corporate 584,663 2,821,367
--------- ---------
Total 7,595,467 5,239,073
--------- ---------
5.) Earnings Per Share
Net loss per common share for basic and diluted earnings per share is based upon
the weighted average number of common shares outstanding during the year. The
weighted average outstanding common shares for the three months ended June 30,
2000 and 1999 was 4,801,826 and 4,928,908, respectively, and the six months
ended June 30, 2000 and 1999 was 4,816,500 and 4,930,698, respectively.
6.) Purchase of SAL
On May 22, 2000, MAC-MO purchased 100% of the outstanding stock of SAL from
Irrevocable Trust located in Springfield, Missouri. The purchase price totaled
$265,830 which includes $15,830 of costs related to the acquisition. The Company
paid a $40,000 non-compete to Rebecca Rhoden who was Trustee of the Irrevocable
Trust.
F-21
<PAGE> 53
MID-AMERICAN ALLIANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7.) Purchase of KJA
On June 1, 2000, the Company, along with its subsidiary MAC-MO, purchased 100%
of the outstanding stock of the Ken Johnson Agency located in Princeton,
Missouri. The purchase price was $495,476 of which the Company paid $195,476 and
MAC-MO paid $300,000. The acquisition was financed using working capital of both
companies. Additionally, the Company issued 30,000 shares of its Common Stock in
exchange for real estate in Princeton where the Ken Johnson Agency is located.
The real estate's appraised value is $51,000.
F-22
<PAGE> 54
EXHIBITS INDEX
<TABLE>
<CAPTION>
<S> <C>
1. Underwriting Agreement- Attached as Exhibit 1
3. Articles of Incorporation and Bylaws- Attached as Exhibit 3
4. Copy of common stock - Attached as Exhibit 4
5. Legal opinion- Attached as Exhibit 5
11. Statement re: computation of per share earnings- See "Dilution" in Offering Document
21. Subsidiaries of registrant- See "Business" in Offering Document
23. Consent of experts and counsel- Attached as Exhibit 5
27. Financial Data Schedule- Attached as Exhibit 27
</TABLE>
