<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
[ ] 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 May 13, 1996, was 2,864,700.
Transitional Small Business Disclosure Format (check one):
Yes No x
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<PAGE> 2
JOHN ADAMS LIFE CORPORATION
FORM 10-QSB
MARCH 31, 1996
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - March 31, 1996
(Unaudited) 3
Consolidated Statements of Operations -
Three months ended March 31, 1996 and 1995
(Unaudited) 5
Consolidated Statements of Cash Flows -
Three months ended March 31, 1996 and 1995
(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
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET--MARCH 31, 1996
ASSETS
(UNAUDITED)
<TABLE>
<S> <C>
CASH AND INVESTMENTS
Cash ........................................................ $ 343,827
Bonds:
Available for sale, at fair value
(amortized cost of $13,166,856) ........................... 13,112,724
Policy loans, net of unearned interest of $312,852 .......... 6,186,609
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19,643,160
REINSURANCE RECOVERABLE ....................................... 2,619,032
DEFERRED POLICY ACQUISITION COSTS, less reimbursement
of deferred policy acquisition costs due
to reinsurance .......................................... 4,280,777
ACCOUNTS RECEIVABLE ........................................... 24,320
ACCRUED INVESTMENT INCOME ..................................... 161,471
OTHER ASSETS .................................................. 546,828
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Total assets ............................................ $27,275,588
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</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET--MARCH 31, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<S> <C>
LIABILITIES:
POLICY LIABILITIES
Future life benefits and other policy obligations ......... $18,498,769
Deferred revenue .......................................... 709,156
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19,207,925
DUE TO REINSURERS ........................................... 1,831,073
OTHER LIABILITIES ........................................... 946,366
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21,985,364
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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 and Outstanding--2,864,700 shares ................ 6,254,547
Net unrealized loss on bonds available for sale,
net of deferred policy acquisition costs
adjustments ........................................... (29,160)
Retained earnings - deficit ............................... (925,788)
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5,299,599
Unearned restricted stock compensation .................... (9,375)
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5,290,224
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Total liabilities and shareholders' equity .............. $27,275,588
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</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
REVENUES:
Premiums and policy charges ................. $ 282,925 $ 313,233
Premiums ceded .............................. (132,490) (147,005)
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Net Premiums and policy charges ............. 150,435 166,228
Interest on policy loans .................... 137,294 113,305
Investment income, net ...................... 192,168 176,437
Net realized investment gains (losses) ...... (374) (4,136)
Net unrealized investment gains(losses) ..... - 66,400
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479,523 518,234
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BENEFITS AND EXPENSES:
Benefits incurred ........................... 443,622 181,319
Reinsurance recoveries ...................... (215,182) (16,477)
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Net benefits incurred ....................... 228,440 164,842
Interest on policyholders'
accumulation accounts ..................... 158,020 100,314
Operating costs and expenses ................ 171,078 324,950
Amortization of deferred policy
acquisition costs ......................... 58,265 (56,427)
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615,803 533,679
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Net loss .................................. $(136,280) $ (15,445)
========= =========
Net loss per share ............................. $ (0.05) $ (0.01)
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .............................................................. $ (136,280) $ (15,445)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Net sales of bonds held for trading ................................. - 11,543
Net realized investment losses (gains) .............................. 374 4,136
Net unrealized investment (gains) losses ............................ - (66,400)
Net accretion of investment premiums and discounts .................. 6,971 (1,063)
Policy loans ........................................................ (139) (45,894)
Reinsurance recoverable ............................................. (57,146) 2,185,082
Accounts receivable ................................................. (14,846) (3,833)
Other assets ........................................................ (244,823) 306,580
Deferred policy acquisition costs before effect of
unrealized investment gains/losses ................................ (279,240) (102,304)
Accrued investment income ........................................... (20,254) 53,673
Policy liabilities .................................................. (229,581) (1,523,403)
Amortization of unearned restricted stock compensation .............. 9,375 9,375
Amounts due to reinsurers ........................................... 415,994 (1,591,949)
Other liabilities ................................................... 310,872 (341,444)
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Net cash provided by (used in) operating activities ................. (238,723) (1,121,346)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments ............................................ (2,678,337) (110,342)
Sales, maturities and repayments of principal on
investments ....................................................... 399,666 2,003,068
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Net cash used in investing activities ................................. (2,278,671) 1,892,726
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CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholder fund receipts ............................................ 2,073,119 (386,927)
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Net cash provided by (used in) financing activities ................... 2,073,119 (386,927)
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INCREASE (DECREASE) IN CASH ................................................ (444,275) 384,453
CASH AT BEGINNING OF YEAR .................................................. 788,102 395,001
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CASH AT END OF YEAR ........................................................ $ 343,827 $ 779,454
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</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(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 ended March 31, 1996, 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,
1995, contained in the Company's 1995 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 March 31, 1996,
are summarized as follows:
<TABLE>
<S> <C>
Total amount capitalized .................. $ 5,740,054
Reimbursement due to reinsurance .......... (1,459,277)
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$ 4,280,777
===========
</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 $29,160 for the three months ended March 31, 1996.
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
policy life of the Company's primary products.
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, in
the first three months of 1996
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 March 31, 1996 and
1995. The impact of stock options was not dilutive.
9
<PAGE> 10
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Results of Operations
The net loss in the first quarter of 1996 totaled $136,000 or $.05 per
share compared to a net loss of $15,000 or $.01 per share for the comparable
period of 1995.
The increase in the net loss for the three months ended March 31, 1996,
compared to the comparable period in 1995, is due primarily to an increase in
amortization of deferred policy acquisition costs, an increase in net benefits
incurred, and a decrease in net unrealized investment gains. These factors were
partially offset by the decrease in operating costs and expenses.
During the first quarter of 1996 compared to the first quarter of 1995,
operating costs and expenses decreased by $154,000 due primarily to the
Company's restructuring program.
Net premiums and policy charges in the first quarter of 1996 decreased
to $150,000 from $166,000 in the first quarter of 1996. The Company has changed
its sales emphasis to annuities. The premiums shown on the Company's
consolidated statement of operations in accordance with GAAP consist of premiums
received for traditional whole-life and term life insurance products. Premiums
collected by the Company for interest sensitive whole-life, and single and
flexible premium deferred annuities are not reported as premium revenues, but
rather are reported as policy liabilities. With respect to these products,
revenues are recognized over time in the form of investment income on invested
funds, surrender charges and mortality and other charges deducted from the
policyholders' account balances. The deposit-type funds (premiums) collected by
the Company for annuities (on a statutory accounting basis as set forth in the
Company's statutory financial statements filed with state insurance departments)
were $1,992,000 in the first quarter of 1996, and $383,000 in the first quarter
of 1995.
There were no net unrealized investment gains or losses in the first
quarter of 1996, as the Company reclassified its bonds held for trading to bonds
available for sale thereby placing all of its bonds in the same category.
Revenues from interest sensitive life policies, consisting of mortality
charges, policy administration fees and surrender charges assessed to policy
account values decreased to $152,000 in the first quarter of 1996 from $192,000
in the first quarter of 1995.
10
<PAGE> 11
Interest on policy loans and net investment income increased to
$329,000 in the first quarter of 1996 from $290,000 in the first quarter of
1995.
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 products.
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.
Management considers its liquidity position to be adequate. The Company
does not invest in high-risk bonds, it keeps tight controls on expenditures, and
its products are structured in such a way that commission expenses and policy
loans are usually less than premium revenues, reinsurance allowances and
interest on policy loans paid in advance. Developing and writing new life
insurance, however, 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. JALIC's statutory capital
and surplus at March 31, 1996, was $2,003,646.
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
<PAGE> 13
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: May 13, 1996 By: Benjamin A. DeMotto
-------------------
Benjamin A. DeMotto
Chairman of the Board
and President
Date: May 13, 1996 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 343,827
<SECURITIES> 13,112,724
<RECEIVABLES> 24,320
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,261,374
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,275,588
<CURRENT-LIABILITIES> 2,777,439
<BONDS> 0
0
0
<COMMON> 6,254,547
<OTHER-SE> (935,163)
<TOTAL-LIABILITY-AND-EQUITY> 27,275,588
<SALES> 0
<TOTAL-REVENUES> 479,523
<CGS> 0
<TOTAL-COSTS> 615,803
<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> (136,280)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> 0
</TABLE>
