<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from _____________to_____________
Commission file number 0-13969
JOHN ADAMS LIFE CORPORATION
(Exact name of small business issuer as specified in its charter)
California 95-4081667
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11845 W. Olympic Boulevard, Suite 905, Los Angeles, California 90064
(Address of principal executive offices)
Issuer's telephone number:
(310) 444-5252
Former Address: Not Applicable
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes x No
----- -----
The number of shares outstanding of the issuer's common stock (no par
value) as of November 8, 1995, was 2,864,700.
Transitional Small Business Disclosure Format (check one):
Yes No x
----- -----
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JOHN ADAMS LIFE CORPORATION
FORM 10-QSB
SEPTEMBER 30, 1995
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - September 30, 1995
(Unaudited) 3
Consolidated Statements of Operations -
Three and nine months ended September 30, 1995
and 1994 (Unaudited) 5
Consolidated Statements of Cash Flows -
Nine months ended September 30 1995 and 1994
(Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
PART II. OTHER INFORMATION 12
</TABLE>
2
<PAGE> 3
PART I. ITEM 1. FINANCIAL INFORMATION
- ---------------------------------------
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET--SEPTEMBER 30, 1995
ASSETS
(UNAUDITED)
<TABLE>
<S> <C>
CASH AND INVESTMENTS
Cash ................................................... $ 971,078
Bonds:
Available for sale, at market value
(amortized cost of $7,199,318) .................... 7,172,314
Trading, at market value
(amortized cost of $2,096,185) .................... 2,064,817
Policy loans, net of unearned interest of $180,443 ..... 6,446,050
--------------
16,654,259
REINSURANCE RECOVERABLE ..................................... 3,819,210
ACCOUNTS RECEIVABLE, net of an allowance for doubtful
accounts of $ -0- ...................................... 7,423
ACCRUED INVESTMENT INCOME ................................... 104,070
OTHER ASSETS, net ........................................... 235,052
DEFERRED ACQUISITION COSTS, less reimbursement of
deferred acquisition costs due to reinsurance .......... 3,693,001
--------------
Total assets ....................................... $ 24,513,015
==============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET--SEPTEMBER 30, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<S> <C>
LIABILITIES:
POLICY LIABILITIES
Future life and other policy benefits ............... $ 16,713,323
Deferred revenue .................................... 753,542
------------
17,466,865
DUE TO REINSURERS ........................................ 1,456,171
OTHER LIABILITIES ........................................ 142,954
------------
19,065,990
------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value--
Authorized--5,000,000 shares; no shares
outstanding ............................... -
Common stock, no par value--
Authorized--15,000,000 shares
Issued--2,864,700 shares ....................... 6,254,547
Net unrealized holding loss on bonds available
for sale ....................................... (121,478)
Retained earnings ................................... (657,919)
------------
5,475,150
Unearned restricted stock compensation .............. (28,125)
------------
5,447,025
------------
Total liabilities and shareholders' equity .......... $ 24,513,015
============
</TABLE>
The accompanying notes are an integral part of these statements.
4
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JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES:
Premiums and other considerations ............ $ 326,826 $ 337,040 $ 1,066,901 $ 1,098,515
Premiums ceded ............................... (113,809) (103,987) (450,487) (486,634)
----------- ----------- ----------- -----------
Net Premiums and other considerations ........ 213,017 233,053 616,414 611,881
Interest on policy loans ..................... 139,580 182,197 385,619 550,925
Investment income, net ....................... 182,274 183,637 531,125 573,984
Net realized investment gains (losses) ....... (39,529) (13,103) (44,931) 6,822
Net change in unrealized holding losses on
bonds held for trading .................... 25,972 (39,050) 144,569 (196,826)
----------- ----------- ----------- -----------
521,314 546,734 1,632,796 1,546,786
----------- ----------- ----------- -----------
BENEFITS AND EXPENSES:
Decrease in liabilities for
future policy benefits (net of
deposit increase of $1,346,765
and $431,390 for September 30, 1995
and 1994, respectively) ........ (120,198) (103,590) (363,951) (238,475)
----------- ----------- ----------- -----------
Benefits incurred ............................ 511,432 562,649 1,180,349 1,051,748
Reinsurance recoveries ....................... (151,842) (23,231) (171,083) (42,447)
----------- ----------- ----------- -----------
Net benefits incurred ........................ 359,590 539,418 1,009,266 1,009,301
Interest on policyholders'
accumulation accounts ...................... 108,072 132,258 312,783 392,240
Operating costs and expenses ................. 158,949 244,524 702,759 700,917
Amortization of deferred
acquisition costs ......................... 54,632 38,471 52,897 82,437
----------- ----------- ----------- -----------
561,045 851,081 1,713,754 1,946,420
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes ............................... (39,731) (304,347) (80,958) (399,634)
PROVISION FOR INCOME TAXES ...................... - - - -
----------- ----------- ----------- -----------
Net income (loss) ............................ $ (39,731) $ (304,347) $ (80,958) $ (399,634)
=========== =========== =========== ===========
Net income (loss) per share .................. $ (0.01) $ (0.11) $ (0.03) $ (0.14)
=========== =========== =========== ===========
Average number of shares ..................... 2,864,700 2,864,700 2,864,700 2,864,700
</TABLE>
The accompanying notes are an integral part of these statements.
5
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JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................... $ (80,958) $ (399,634)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Net realized investment (gains) losses ............... 44,931 (6,822)
Net change in unrealized investment losses ........... (144,569) 196,826
Net amortization of investment premiums (discounts) .. 179 2,328
Increase in policy loans, net ........................ (127,328) (378,800)
(Increase) decrease in reinsurance receivable ........ 1,842,737 (509,832)
(Increase) decrease in accounts receivable, net ...... 12,524 8,888
Decrease in other assets, net ........................ 500,673 234,684
Increase in deferred acquisition costs
before effect of unrealized bond losses ............ (302,410) (275,112)
(Increase) decrease in accrued investment income ..... 69,499 11,273
Increase (decrease) in policy liabilities ............ (1,988,118) 703,271
Amortization of unearned restricted stock compensation 28,125 28,125
Increase (decrease) in due to reinsurers ............. (1,579,818) 255,363
Increase (decrease) in other liabilities ............. (325,318) 83,894
----------- -----------
Net cash (used in) provided by operating activities .. (2,049,851) (45,548)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale:
Purchases of investments ............................. (2,105,047) (3,266,350)
Sales, maturities and repayments of principal on
investments ........................................ 3,637,510 3,066,143
Securities held for trading:
Purchases of investments ............................. - -
Sales, maturities and repayments of principal on
investments ........................................ 44,126 -
----------- -----------
Net cash (used in) provided by investing activities .... 1,576,589 (200,207)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholder fund receipts ............................. 1,049,339 35,748
----------- -----------
Net cash used in financing activities .................. 1,049,339 35,748
----------- -----------
DECREASE IN CASH ............................................ 576,077 (210,007)
CASH, BEGINNING OF YEAR ..................................... 395,001 403,843
----------- -----------
CASH, END OF QUARTER ........................................ $ 971,078 $ 193,836
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
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JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
Summary of significant accounting policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normal accruals)
considered necessary for a fair presentation have been included. In addition,
these accounting principles differ in certain material respects from the
accounting practices prescribed by various insurance regulatory authorities. The
results of operations for the three months and nine months ended September 30,
1995, are not necessarily indicative of the results to be expected for the full
year. The accompanying unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements for the
year ended December 31, 1994, contained in the Company's 1994 Annual Report to
Shareholders. Certain items have been reclassified to conform to the current
year's presentation.
Premium revenue and related expenses
Premiums for traditional life insurance products are recorded as earned when
due. Benefits and expenses are associated with earned premiums in order to
recognize profits over the contract terms in proportion to premiums earned. This
association is accomplished by the provision of a reserve for future policy
benefits and the deferral and subsequent amortization of policy acquisition
costs. The reserve for future policy benefits and the amortization of deferred
acquisition costs for traditional life insurance products are computed using the
net level premium method based on estimated future investment yield, mortality
and withdrawals.
Revenues for interest sensitive life policies and investment products consist of
mortality charges for the cost of insurance, policy administration fees and
surrender charges assessed to policy account balances.
7
<PAGE> 8
Deferred revenue
Deferred revenue represents the excess of premiums collected from policyholders
over the cost of providing insurance. This profit is amortized into income over
the life of the related insurance policy.
Deferred acquisition costs
The costs of acquiring new business, principally commissions paid to agents and
other related policy issuance costs, are capitalized and amortized over the
policy term in proportion to related premium income for traditional life
insurance products and for interest sensitive life-type and investment contracts
over the estimated lives of the contracts in relation to the present value of
the estimated gross profits, which are comprised of net interest income, net
realized investment gains and losses, surrender charges, mortality margins and
policy administration fees and expenses. Amounts received from reinsurers
representing reimbursements of the costs of acquiring new business are deferred
and recognized over the policy term in proportion to related premiums paid to
reinsurers.
Deferred acquisition costs, net of accumulated amortization at September 30,
1995, are summarized as follows:
<TABLE>
<S> <C>
Total amount capitalized..............$5,179,388
Reimbursement due to reinsurance......(1,486,387)
----------
$3,693,001
==========
</TABLE>
Bonds
Bonds available for sale are carried at aggregate market value, with net
unrealized holding losses charged directly to shareholders' equity. The change
in net unrealized holding loss on bonds available for sale charged to
shareholders' equity was $121,000 for the nine months ended September 30,
1995. Bonds held for trading are carried at aggregate market value with net
changes in unrealized losses charged to earnings. Realized gains and losses on
the sale of bonds are recognized in operations at the date of sale and are
determined using the specific cost identification method, in accordance with the
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
Policy loans
Policy loans are recorded at the unpaid balance, less interest collected in
advance. Interest on policy loans is recognized using the effective interest
method.
8
<PAGE> 9
Future policy benefits
Liabilities for future policy benefits for traditional life insurance products
have been computed on the net level premium method, based upon the following
estimated future investment yield, mortality and withdrawal assumptions:
Investment Yield - 9.9 percent to 13.6 percent annually over the
life of such policies.
Mortality Rates - Primarily based on 80 percent of the 1965-1970
Modified Basic Select and Ultimate Mortality Table.
Withdrawal Rates - Primarily based on Company experience.
Liabilities for interest sensitive life-type and investment contracts are
stated at policyholder account values (premiums received, plus interest
credited less withdrawals and charges for mortality and policy administration).
Income taxes
The adoption of Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" did not have a material effect on the financial position or
results of operations of the Company for the nine months of 1995.
Earnings per share
Earnings per share are computed on the basis of the weighted average number of
shares outstanding during each year. The calculation of the weighted average
number of shares outstanding includes the effect of stock equivalents arising
from the Company's repurchase of its stock and the issuance of restricted stock.
Weighted average shares outstanding totaled 2,864,700, at September 30, 1995 and
1994. The impact of stock options was not dilutive.
9
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JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Results of Operations
The net loss totaled $40,000 or $.01 per share in the third quarter of
1995, compared to a net loss of $304,000 or $.11 per share in the third quarter
of 1994. For the nine months, there was a net loss of $81,000 or $.03 per share
in 1995, compared to a net loss of $400,000 or $.14 per share in 1994.
The decrease in net loss of $304,000 in the third quarter of 1994 to a
net loss of $40,000 in the third quarter of 1995, is due primarily to a decrease
in net benefits incurred, a decrease in operating costs and expenses, and to the
net change in unrealized losses on bonds held for trading.
The decrease in the net loss for the nine months ended September 30,
1995, of $319,000 to the comparable period in 1994, is due primarily to the net
change in unrealized losses on bonds held for trading.
Revenues from interest sensitive life policies, consisting of mortality
charges, policy administration fees and surrender charges assessed to policy
account values increased to $150,000 in the third quarter of 1995 from $143,000
in the third quarter of 1994. For the nine months, revenues from interest
sensitive policies decreased to $501,000 in 1995 from $534,000 in 1994.
The premiums collected by the Company for single premium and flexible
premium deferred annuities are not reported as premium revenues, but rather are
reported as deposit liabilities. With respect to these products, revenues are
recognized over time in the form of investment income on invested funds. The
gross premiums collected for these products during the nine month period ended
September 30, 1995, were $1,022,000 and $-0- for the comparable period in 1994.
Net investment income decreased to $322,000 in the third quarter of
1995 from $366,000 in the third quarter of 1994. For the nine months, net
investment income decreased to $917,000 in 1995 from $1,125,000 in 1994.
Amortization of deferred acquisition costs increased primarily due to
revised assumptions included in estimates of future gross profits relating to
investment and mortality margins based upon actual experience for the Company's
interest sensitive life
10
<PAGE> 11
products. Amortization of deferred acquisition costs totaled $55,000 in the
third quarter of 1995, compared to $39,000 in the third quarter of 1994. For the
nine months, such amortization totaled $53,000 in 1995 and $82,000 in 1994.
Liquidity and Capital Resources
The Company's investments in policy loans tends to enhance liquidity,
since liabilities of the Company on surrenders of whole life paid-up at age 70
or 80 policies can be satisfied largely through the discharge of the policy
loan, with very little net cash outflow. The Company does not invest in
high-risk bonds.
Management considers its liquidity position to be adequate. Developing
and writing new life insurance can result in a reduction of statutory capital
and surplus because the Company establishes statutory reserves for future policy
benefits and incurs a noncash liability for unearned policy loan interest that
exceeds the premium revenue associated with the new policy. Because of declining
statutory surplus, due to statutory operating losses, JALIC received notice that
the National Association of Insurance Commissioners' Examiner Team has
designated JALIC as requiring second priority regulatory attention. The
designation "second priority" does not necessarily indicate that a company is
facing financial adversity but is a recommendation that the state insurance
department having authority over such companies accord them high priority in its
surveillance process. This is an improvement over the "first priority"
designation that JALIC received last year.
The amount of dividends that may be paid by JALIC to its parent is
limited by insurance statutes and regulations and certain special federal income
tax provisions applicable to insurance companies.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any legal proceedings that in
management's opinion could result in a material adverse effect
on the Company's financial condition or results of operation.
Item 2. Changes in Securities - Not applicable.
Item 3. Defaults Upon Senior Securities - Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders -
Not applicable.
Item 5. Other Information - Not applicable.
Item 6. Exhibits and Reports
(a) No reports on Form 8-K were filed during the quarter
for which this report is filed.
(b) Exhibits - Previously filed.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHN ADAMS LIFE CORPORATION
Date: November 8, 1995 By: Benjamin A. DeMotto
-------------------
Benjamin A. DeMotto
Chairman of the Board
and President
Date: November 8, 1995 By: Bernadette de Vera
------------------
Bernadette de Vera
Controller
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF EARNINGS AND CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 971,078
<SECURITIES> 9,237,131
<RECEIVABLES> 7,423
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,138,912
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,513,015
<CURRENT-LIABILITIES> 1,599,125
<BONDS> 0
<COMMON> 6,254,547
0
0
<OTHER-SE> (686,044)
<TOTAL-LIABILITY-AND-EQUITY> 24,513,015
<SALES> 0
<TOTAL-REVENUES> 1,632,796
<CGS> 0
<TOTAL-COSTS> 1,713,754
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (80,958)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
