<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-KSB
___________
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________to______________
Commission file number 0-13969
JOHN ADAMS LIFE CORPORATION
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
California 95-4081667
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
11845 W. Olympic Boulevard, Suite 905, Los Angeles, California 90064
(Address of principal executive offices) (Zip Code)
Issuer's telephone number:
(310) 444-5252
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of Class)
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
----- -----
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the year ended December 31, 1995, were
$2,164,306.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was traded in the
over-the-counter market on March 11, 1996, was approximately $665,497.
The number of shares outstanding of the issuer's common stock (no par
value) as of March 22, 1996, was 2,864,700.
DOCUMENTS INCORPORATED BY REFERENCE
The portions of this report listed below have been incorporated by
reference from the Company's Proxy Statement. All references herein to the
"Proxy Statement" refer to the definitive Proxy Statement of the Company to be
filed with the Securities and Exchange Commission within 120 days after the
close of the Company's fiscal year (December 31, 1995).
PART III
<TABLE>
<S> <C>
ITEM 9 - DIRECTORS AND Proxy Statement: "Election
EXECUTIVE OFFICERS of Directors"
OF THE REGISTRANT
ITEM 10 - EXECUTIVE Proxy Statement: "Executive
COMPENSATION Compensation"
ITEM 11 - SECURITY OWNERSHIP Proxy Statement: "Security
OF CERTAIN Interests of Certain
BENEFICIAL OWNERS Owners and Management"
AND MANAGEMENT
ITEM 12 - CERTAIN RELATIONSHIPS Proxy Statement: "Certain
AND RELATED Transactions"
TRANSACTIONS
</TABLE>
With the exception of those portions of the Proxy Statement that are
expressly incorporated by reference in this Form 10-KSB, the Proxy Statement is
not to be deemed filed as part of this Report.
Transitional Small Business Disclosure Format:
Yes No x
----- -----
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company
John Adams Life Corporation is an insurance holding company engaged
through its subsidiaries in the sale and issuance of life and annuity
insurance. The Company was incorporated under the laws of the State of
California in 1975. In 1976, it commenced operations in the life insurance
business through John Adams Life Insurance Company of America ("JALIC"), a
California life insurance company, and a 99.6% owned subsidiary. The Company's
wholly-owned supervising general agency subsidiary is Firingline Corporation
("Firingline"). Unless the context otherwise requires, John Adams Life
Corporation and its subsidiaries are herein referred to as the "Company." The
Company's offices are located at 11845 West Olympic Boulevard, Suite 905, Los
Angeles, California 90064; and its telephone number is (310) 444-5252.
Products
In 1995, the Company focused its sales emphasis on its annuity
products, which include a single premium deferred annuity and a flexible
premium deferred annuity. The Company anticipates that a substantial portion
of the premiums from these products will be from individuals who qualify under
Internal Revenue Code Section 403 (b) for the tax deferral provided by that
Section, e.g., employees of school districts. These products are also designed
(with endorsement modifications) for use as individual retirement annuities.
In 1995, the Company added two more annuity products to its portfolio:
VaultPlus and the Independence Plan. VaultPlus is a flexible premium deferred
annuity that the Company will sell to individuals as old as 100. The
Independence Plan is a flexible premium deferred annuity with a loan provision
and a market value adjustment and is available to individuals under age 86.
Both policies are intended for estate planning purposes and asset protection
for seniors.
The following tables sets forth the Company's deposit type funds
(premiums) collected for annuities (on a statutory accounting basis as set
forth in the Company's statutory financial statements filed with state
insurance departments):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Tax-qualified annuities $ 922,991 $ 51,963 $ _
Non-tax-qualified
annuities 1,438,468 55,459 77,035
---------- -------- -------
Total $2,361,459 $107,422 $77,035
========== ======== =======
</TABLE>
1
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In 1995, the Company continued its sales of its principal life
insurance product, the BestLife III policy, an interest sensitive whole life
policy with a level lifetime premium using a current, Company declared interest
rate as a credit to internal policy values and with charges based upon
currently declared mortality rates. The BestLife III policy provides for a
substantial cash buildup for those continuing premium payments. The BestLife
III policy is marketed primarily to individuals, and has both annual premium
and single premium deferred annuity riders available.
Interest sensitive policies, principally comprised of BestLife III
policies, accounted for 81% of the Company's life insurance total direct
collected premiums during 1995.
The Company's other interest and mortality sensitive products include
an adjustable premium low cost whole-life plan and annual premium and single
premium deferred annuity riders. The Company also markets term life insurance
and other products.
The Company's former principal product, the Wealthbuilder, a
whole-life paid-up at age 70 or 80 policy, accounted for approximately 6%, 19%
and 13%, of the Company's premium revenue in 1995, 1994 and 1993, respectively.
No new policies were issued in 1995 for this product, and the Company regards
the insurance in force as a closed block of business.
The Company's annual lapse ratios for its ordinary life policies were
13.2%, 16.2% and 18.5% in 1995, 1994 and 1993, respectively. Lapse ratios for
these purposes are calculated as prescribed by the regulations of the National
Association of Insurance Commissioners ("NAIC") for annual reporting to the
departments of insurance of the various states where the Company does business.
The following table sets forth the average size of the Company's life
policies:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest sensitive policies
issued during period........... $112,453 $ 95,517 $ 92,077
Interest sensitive policies
in force on December 31........ 120,270 119,556 122,952
Whole-life paid-up at age 70
or 80 issued during period..... - - -
Whole-life paid-up at age 70
or 80 in force on December 31.. 273,831 237,086 263,306
Other issued during period..... 156,293 116,485 210,464
Other in force on December 31.. 127,789 125,141 127,798
</TABLE>
2
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The table below sets forth statistical information
relating to the Company's life insurance operations
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Premiums and other considerations for the
years ended December 31:
Whole life paid-up at age 70 or 80 ........ $ 85 $ 372 $ 225
Interest sensitive life ................... 1,201 1,249 1,291
Term life premiums ........................ 103 104 120
Other life premiums ....................... 154 207 121
Reinsurance premiums ceded (1).......... (777) (853) (896)
--------- --------- ---------
Total ............................... $ 766 $ 1,079 $ 861
========= ========= =========
Gross life insurance in force on January 1:
Whole life paid-up at age 70 or 80 ........ $ 16,833 $ 20,274 $ 21,528
Interest sensitive life ................... 107,002 111,518 109,030
Term life ................................. 19,337 19,220 19,313
Other life ................................ 3,814 1,483 1,954
--------- --------- ---------
Total ............................... $ 146,986 $ 152,495 $ 151,825
========= ========= =========
Life insurance written during period:
Whole life paid-up at age 70 or 80 ........ - - -
Interest sensitive and other life ......... $ 16,274 $ 21,615 $ 29,737
--------- --------- ---------
Total ............................... $ 16,274 $ 21,615 $ 29,737
========= ========= =========
Life insurance revived and/or increased
during period ............................. $ - $ 319 $ 369
========= ========= =========
Life insurance terminated during period:
Death ..................................... $ 551 $ 2,952 $ 640
Surrender ................................. 7,614 9,997 9,841
Lapse ..................................... 11,242 14,236 18,274
Conversion ................................ 664 174 -
Decrease .................................. 4,611 84 681
--------- --------- ---------
Total ............................... $ 24,682 $ 27,443 $ 29,436
========= ========= =========
Gross life insurance in force on December 31:
Whole life paid-up at age 70 or 80 ........ $ 15,061 $ 16,833 $ 20,274
Interest sensitive life ................... 96,938 107,002 111,518
Term life ................................. 18,786 19,460 19,220
Other life ................................ 7,793 3,691 1,483
--------- --------- ---------
Total ............................... $ 138,578 $ 146,986 $ 152,495
========= ========= =========
Reinsurance ceded as of December 31 .......... $ 77,544 $ 84,699 $ 85,086
========= ========= =========
Life insurance in force net of
reinsurance on December 31 ................ $ 61,034 $ 62,287 $ 67,409
========= ========= =========
</TABLE>
(1) See footnote to audited financial statements regarding reinsurance
agreement effective December 31, 1994.
3
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Marketing
The Company's sales are made by general agents through Firingline.
The Company's general agents are independent life insurance agents who are
compensated on a commission basis. Agency agreements with Firingline are
terminable by either party on specified notice. At December 31, 1995,
Firingline had approximately 390 life insurance general agencies, with one or
more agents, under contract. Senior management takes an active role in the
Company's sales efforts and assists agents in developing prospects and
explaining the Company's products to clients.
Because the Company does not directly employ sales agents, it has
minimal training expense and low costs associated with supporting agents.
While this type of organization allows the Company to expand its sales force
without significant expense, it does require the Company to maintain current
and competitive products, as its agents customarily handle the product lines of
several companies.
Reinsurance
The Company reinsures a substantial portion of its life insurance in
force. Reinsurance essentially transfers to another insurance company the
obligation to pay a portion of the benefits on a policy. Despite reinsurance,
the Company remains primarily liable to policyholders for all policy benefits.
As a result, if a reinsurer is unable to pay its portion of a claim, the
Company must pay the entire amount. The Company's principal reinsurers are
substantial and established companies. Reinsurance can be obtained on either a
coinsurance, modified coinsurance or a yearly renewable term ("YRT") basis.
Coinsurance represents a sharing in all cost and revenue elements of
an individual policy in proportion to the obligations assumed by each company.
The reinsurer receives its proportionate share of the policy premium, but must
also establish adequate reserves and participate in death claims, benefit
payments, cash surrenders, and non-forfeiture benefits on a proportionate
basis. The reinsurer also shares in general policy expenses by granting the
company issuing the policy a specific allowance for sales and administrative
expenses. Since the acquisition costs of new business on a cash (statutory)
basis generally exceed the first year premium (and thus reduce statutory
surplus), this allowance permits the writing of additional business with a
minimal impact on surplus. The sharing of premiums with the reinsurer,
however, reduces the profitability of the policy.
Under YRT, the mortality risk in excess of that retained by the
company issuing the insurance policy is ceded to the reinsurance company. In
return for assuming the excess mortality risk, the reinsurance company receives
a premium which increases with the age of the insured and with the policy
duration. YRT enables the Company generally to realize a greater portion of
the income on its policies,
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but since YRT treaties typically provide the Company no allowance, they result
in a larger reduction of statutory surplus than coinsurance or modified
coinsurance and require the Company to bear the full costs of acquisition of
the policy.
During 1995, the Company retained a maximum of $50,000 of mortality
risk on any one life of the policies it issued and reinsured the remainder. As
of December 31, 1995, the Company used YRT for 28% of its reinsured business
and coinsurance or modified coinsurance for 72% of its reinsured business.
These percentages do not include the effect of the December 31, 1995
coinsurance/assumption agreement, see below.
In December 1994, JALIC entered into a coinsurance/assumption
agreement with a Texas domiciled life insurance company (the "Reinsurer"). The
agreement covers JALIC's forty-eight single premium whole-life policies (a
closed block of JALIC's business) and provides for the transfer of all of the
risks under these policies and the administration of the policies to the
Reinsurer. The agreement also provides for complete assumption of the policies
by the Reinsurer upon approval of the agreement by the California Department of
Insurance. Such approval was received in March 1995. (See Item 6,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations.")
Investment Operations
Investment income represents an important portion of the Company's
total revenues. JALIC's investments must comply with applicable state
insurance laws and regulations that prescribe the type and limit the
concentration of investments. The Company does not use any outside investment
managers.
Policy loans constituted 23% of the Company's assets as of December
31, 1995. This high percentage of policy loans reflects the fact that most
policyholders of the Company's whole-life paid-up at age 70 or 80 policies
borrowed against the policy's cash value.
The Company's policy loans are made to the policyholders, upon
request, on policies having accumulated cash value. Policy loans may be repaid
at any time and must be repaid upon the termination of the policy. Since the
death benefit or any cash surrender value payable on any policy is reduced by
the amount of the existing policy loan, the Company is assured that the policy
loan is fully recoverable.
Policy loan interest rates are determined by the particular policy
type, as is the guaranteed interest rate for the accumulation of all policy
values. Whole-life paid-up at age 70 or 80 policies issued after January 1,
1985, provide for a variable loan interest rate, which is indexed to Moody's
Corporate Bond Yield Averages, as permitted by statute. The rate is set for
intervals not to exceed one year.
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<PAGE> 8
Policy loan interest is due and payable in advance for a period of one
year on each policy anniversary. If the policy loan interest is unpaid, the
policy's cash value is charged for the unpaid amount. If the policy's cash
value is insufficient to pay the interest due, the policy will lapse.
Although the concentration of the Company's investments in policy loans
reduces the Company's liquidity needs, the Company maintains a portion of its
portfolio in liquid investments to satisfy payments to policyholders. The
following table sets forth the principal elements of the Company's investment
portfolio for the past three years. Bond amounts are stated at market value.
All bonds are rated investment grade.
<TABLE>
<CAPTION>
December 31,
-------------------------------
(Dollar Amounts in thousands) 1995 1994 1993
-----------------------------
<S> <C> <C> <C>
Policy loans ...................... $ 6,187 $ 6,319 $ 8,112
------- ------- -------
Bonds
U.S. government and
government agencies............. $ 8,495 $ 7,322 $ 6,726
Corporate and other bonds........ 867 1,229 2,335
Public utilities................. 1,643 1,485 2,059
------- ------- -------
Total bonds ..................... 11,005 10,036 11,120
Cash............................... 788 395 404
------- ------- -------
Total investments ............... $ 17,980 $ 16,750 $ 19,636
======= ======= =======
</TABLE>
The table (set forth) below summarizes the Company's investment results
for the following periods:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
(Dollar amounts in thousands) 1995 1994 1993
-----------------------------
<S> <C> <C>
Interest on policy loans.......... $ 531 $ 725 $ 748
Investment income, net............ $ 718 $ 773 $ 847
Net realized gain/loss on
investments..................... $ (46) $ 7 $ 304
Average yield on policy loans..... 8.9% 10.6% 9.8%
Average yield on invested
assets before net realized
investment gains/losses......... 6.4% 7.0% 7.8%
Average yield on invested
assets after net realized
investment gains/losses......... 6.0% 7.1% 10.8%
Average yield on invested assets
after net realized and
unrealized investment gains/
losses.......................... 7.8% 3.0% 12.0%
</TABLE>
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Competition
The life insurance industry is highly competitive and consists of a
large number of companies, many of which have financial resources, employees,
facilities, and experience in excess of the Company's. Many of these companies
currently market various products similar to the Company's products. These
companies have large, well established sales forces and greater resources at
their disposal. They could, if they chose to do so, cut premiums, pay greater
commissions and otherwise attempt to increase their market share to the
detriment of the Company.
The Company must also compete with other insurance companies for
agents. Since these agents typically represent more than one company, the
Company must be able to offer competitively priced products and must be able to
pay competitive commission rates to its agents. Larger, more established
companies may have the ability to pay higher commissions than the Company is
able or willing to pay. Additionally, some of these other companies provide
agents with benefits that the Company does not provide, such as group insurance
programs. There is no assurance that the Company will be able to continue to
compete with these companies in obtaining the services of high quality agents.
Any substantial loss in its agency distribution system could have a severe
impact on the Company's revenues.
Regulation
Most states have enacted legislation that regulates insurance holding
company systems. The Company and JALIC have registered as a holding company
system pursuant to such legislation in California.
JALIC is licensed to do business in California, Arizona, Hawaii,
Louisiana, New Mexico, Oregon, Utah and Washington. As a licensed insurance
agent, Firingline is also subject to regulation in the various states in which
it operates.
As a part of their routine regulatory oversight process, insurance
departments conduct periodic detailed examinations of the books, records and
accounts of insurance companies domiciled in their states. The California
Department of Insurance concluded such an examination of JALIC for the periods
ended 1990, 1991 and 1992. The conclusions reached in the examination for
these periods did not result in any adjustment to JALIC's capital and surplus,
or changes in its business or operations.
JALIC is subject to regulation and supervision by the states in which
it is authorized to do business. The laws of the various states establish
supervisory agencies with broad administrative and supervisory powers relative
to granting and revoking licenses to transact business, regulating trade
practices, establishing guarantee associations, licensing agents, approving
policy forms, setting reserve requirements, determining the form and content of
required financial statements, determining the reasonableness and adequacy of
capital and
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<PAGE> 10
surplus, prescribing the type and amount of investments permitted and other
related matters. Recently, increased scrutiny has been placed upon the
insurance regulatory framework, and a number of state legislatures have
considered or enacted legislative proposals that alter, and in many cases
increase, state authority to regulate insurance companies. In addition,
legislation has been introduced periodically in Congress that could result in
the federal government assuming some role in the regulation of the insurance
industry. In light of these legislative developments, the National Association
of Insurance Commissioners ("NAIC") and insurance regulators are also involved
in a process of reexamining existing laws and their application to insurance
companies. In particular, this reexamination has focused on insurance company
investment and solvency issues and, in some instances, has resulted in new
interpretations of existing law, the development of new laws and the
implementation of nonstatutory guidelines. Principal among these are
risk-based capital requirements, mandatory asset adequacy testing, the
development of a new model investment law and prospective increased limitations
on dividends. These developments may impact the structure of an insurance
company's investment portfolio and the earnings thereon. It is not possible to
predict the future impact of changing regulations on the operations of the
Company and JALIC.
Under the NAIC's risk-based capital initiative, insurance companies
must calculate and report information under a risk-based capital formula on
their year-end statutory financial statements. This information is intended to
permit insurance regulators to identify and require remedial action for
inadequately capitalized insurance companies, but is not designed to rank
adequately capitalized companies. The NAIC initiative provides for four levels
of potential involvement by state regulators in connection with inadequately
capitalized insurance companies, ranging from regulatory control of the
insurance company to a requirement for the insurance company to submit a plan
to improve its capitalization. The California Department of Insurance requires
that JALIC have a minimum statutory capital and surplus of $2,000,000 as of
December 31, 1995, and that such minimum increase by at least $700,000 a year
until its capital and surplus is at least $5,000,000 by December 31, 1999.
JALIC's capital and surplus at December 31, 1995, is $2,000,276. (See Item 6,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations.") Based on the Company's calculations, using statutory financial
statements at December 31, 1995, and the NAIC's risk-based capital formula,
JALIC's risk-based capital is in excess of the required capital levels.
Insurance departments in the states where JALIC is domiciled or doing
business require insurance companies to make annual and quarterly filings.
These statutory filings require classifications of investments and the
establishment of mandatory reserves designed to stabilize a company's statutory
surplus against fluctuations in the market value of stocks and bonds, according
to regulations prescribed by the NAIC. These reserves are the interest
maintenance reserve
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<PAGE> 11
("IMR") and the asset valuation reserve ("AVR"). They are generally required
by state insurance regulatory authorities to be established as a liability on a
life insurer's statutory financial statements, but do not affect financial
statements of the Company prepared in accordance with generally accepted
accounting principles. The new regulations expand reserve requirements to
include all invested assets and, for investments having a fixed maturity date,
to distinguish between gains and losses resulting from changes in interest
rates and gains and losses resulting from changes in creditworthiness. The IMR
captures all investment gains and losses on debt instruments (bonds, bank
loans, mortgage-backed securities and mortgage loans) resulting from changes in
interest rates and provides for subsequent amortization of such amounts into
statutory net income on a basis reflecting the remaining life of the assets
sold, thus limiting the ability of an insurer to enhance statutory surplus by
taking gains on fixed income securities. The AVR captures investment gains and
losses related to changes in creditworthiness and is adjusted each year based
on a formula related to the quality and loss experience of the Company's
investment portfolio. Such reserves will affect the ability of JALIC to
reflect fully the future investment gains and losses in current period
statutory earnings and surplus.
Employees
As of March 22, 1996, the Company had 9 employees; the Company
considers the number of its employees adequate for its business operations.
The Company will expand its personnel, as necessary, to meet future growth.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices are located at 11845 West Olympic
Boulevard, Suite 905, Los Angeles, California 90064. The Company occupies
approximately 3,700 square feet at this location; the Company may terminate
the lease upon three-month's notice. The Company believes that its facilities
are adequate for its current level of operations. The Company owns no real
property.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of its security
holders during the fourth quarter of 1995.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is thinly traded in the over-the-counter
market under the symbol "JALC". The following table sets forth, for the
periods shown, the range of high and low bid quotations for the Company's
common stock in the over-the-counter market. Quotations are inter-dealer,
without retail markups, markdowns or commissions, and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Calendar Year High Low
------------- ---- ---
<C> <C> <C>
1995:
First Quarter............... $ 1/2 $ 3/8
Second Quarter.............. 7/16 3/8
Third Quarter............... 5/8 13/32
Fourth Quarter.............. 9/16 9/16
1994:
First Quarter............... $ 1 3/8 $ 1
Second Quarter.............. 1 3/16 7/8
Third Quarter............... 1 3/4
Fourth Quarter.............. 7/8 1/2
</TABLE>
As of March 20, 1996, the Company had approximately 90 record owners
and 200 beneficial owners of its common stock. The Company has not paid
dividends on its common stock and does not anticipate paying dividends in the
foreseeable future. It is anticipated that any cash available from operations
will be used to finance growth. In addition, 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. The payment of dividends by JALIC would also reduce its capital and
surplus, which could affect the amount of insurance it is able to issue.
10
<PAGE> 13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company sells life and annuity products. Premiums shown on the
Company's consolidated financial statements 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.
Results of Operations
1995 Compared to 1994. The Company's loss before benefit for income
taxes totaled $203,000 in 1995 as compared to a $916,000 loss in 1994, a
decrease of $713,000.
Premiums and other considerations for 1995 and 1994, included the
recognition of deferred revenue amortization of $76,000 and $197,000,
respectively, resulting from surrender fees and also including revenue from
interest sensitive life policies which consists of mortality charges, policy
administration fees and surrender charges assessed to policy account values, of
$645,000 and $702,000, respectively.
In 1995, net premiums and other considerations decreased by $300,000.
This decrease resulted from the changing sales emphasis to annuities.
The 1994 benefits incurred amount included the effect of the
reinsurance transaction at December 31, 1994. In 1995, deposit type funds
collected by the Company for its single premium and flexible premium deferred
annuities (on a statutory accounting basis) were $2,317,000 compared to
$52,000 in 1994. These are accounted for as deposits for generally accepted
accounting principles.
Net unrealized investment gains included in income changed by $644,000
to $196,000 in 1995 as compared to an unrealized loss of $448,000 in 1994. The
1995 unrealized gains and losses were derived primarily from recording the
Company's trading portfolio at market. In 1994, the unrealized loss included a
$177,000 accrual for losses on the sale of certain securities sold in connection
with the reinsurance transaction described in Item 1, "Business - Reinsurance."
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<PAGE> 14
Net benefits incurred decreased by $1,300,000 compared to the same
period of 1994 due to a $1,600,000 decrease in death benefits offset by a
$300,000 increase in surrender benefits.
Management of the Company continuously monitors the impact of
surrenders on the recoverability of deferred acquisition costs and the adequacy
of reserves for future policy benefits.
Operating costs and expenses decreased by $170,000 in 1995 as compared
to 1994, as a result of economies exercised by the Company.
The amortization of Deferred Policy Acquisition Costs decreased to
$117,000 in 1995 from $165,000 in 1994 primarily due to the impact of the 1994
reinsurance transaction which reduced the overall level of Deferred Policy
Acquisition Costs and the slower amortization on investment products in 1995
pursuant to Statement of Financial Accounting Standards No. 97 (SFAS No. 97),
"Accounting and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and Realized Gains and Losses from the Sale of Investments."
Due to the current year's loss from operations, the Company did not
incur a tax expense in 1995. Further, no deferred tax benefit was recorded as
a result of the net operating loss that exists at December 31, 1995.
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. (See Item 1, "Business -- Investment
Operations.")
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. Because of declining
statutory surplus, due to statutory operating losses, JALIC is required by the
California Department of Insurance to have minimum statutory capital and
surplus of $2,000,000 at December 31, 1995, and an additional $350,000
semiannually thereafter until December 31, 1999, at which time its minimum
statutory capital and surplus must be $5,000,000. JALIC's statutory capital and
surplus at December 31, 1995 is $2,000,276. To enable JALIC to increase its
statutory capital and surplus, the Company contributed $400,000 to JALIC's
surplus. The
12
<PAGE> 15
contribution was accomplished in part by an unsecured loan of $377,000 to the
Company.
The amount of capital and surplus necessary for growth is related to
future new business and reinsurance ceded levels. Reinsurance generally lowers
surplus needs, since reinsurers often assume the reserve requirements for
amounts of insurance ceded and also pay the ceding company a specific allowance
for selling and administrative expenses incurred in obtaining the new
business. The allowances and reserve credits, for which the ceding company pays
a premium, relieve charges to expenses and replace cash expenditures, thereby
replenishing capital. Reinsurance, however, also reduces the ceding company's
ability to realize the full profitability of its business. In December 1994,
JALIC entered into a coinsurance/assumption agreement for forty-eight single
premium policies (a closed block of its business); this resulted in a statutory
gain to JALIC of $303,000 in 1994, but no gain/loss was reported for GAAP
purposes other than the $177,000 loss related to the sale of certain securities
in January 1995. This sale in January 1995, has no material impact on statutory
capital and surplus due to the effect of the IMR. This agreement was not part
of JALIC's usual reinsurance program; however, the Company may enter into
additional assumption agreements in the future. (See Item 1, "Business --
Reinsurance.")
The amount of dividends that may be paid by John Adams Life Insurance
Company of America to its parent is limited by insurance statutes and
regulations and certain special federal income tax provisions applicable to
insurance companies.
Inflation generally has little impact upon the Company's business after
an insurance policy is sold, primarily because premiums are set amounts and
future policy benefits are monetarily fixed. However, inflation can affect the
face amount and type of policy that the insurance-buying public may prefer at a
particular time and will affect operating costs and interest rates on policy
loans. Inflation and interest rate changes will affect operating costs and
interest rates on policy loans and may have effects on the sale and
profitability of the annuity products and other products offered by the
Company. For example, if interest rates rise, competing investments (such as
annuities or life insurance products offered by the Company's competitors,
certificates of deposit, mutual funds, and similar instruments) may become more
attractive to potential purchasers of the Company's products until the Company
increases the rate credited to holders of its interest sensitive life and
annuity products. In contrast, as interest rates fall, the Company attempts to
adjust its credited rates to compensate for the corresponding declines in its
net investment income. The Company constantly monitors interest rates and sells
policies and annuities that permit flexible responses to interest rate changes
as part of the Company's management of interest rate spreads.
13
<PAGE> 16
In addition, changes in the prevailing economic conditions, including
inflation, changes in interest rates and the monetary and fiscal policies of the
federal government, may materially and adversely affect the Company as well as
similarly situated companies. In general, the market value of the Company's
portfolio increases or decreases in inverse relationship to the fluctuation in
interest rates and the Company's net investment income increases or decreases in
direct relationship with interest rate changes. For example, if interest rates
decline, the Company's investments generally will increase in market value,
while net investment income will decrease as fixed income investments mature
or are sold and proceeds are reinvested at the declining rates and vice versa.
ITEM 7. FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements on page 18.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
14
<PAGE> 17
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 10. EXECUTIVE COMPENSATION
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information for Items 9, 10, 11 and 12 of Part III is hereby
incorporated by reference from the Company's definitive proxy statement, which
will be filed with the Securities and Exchange Commission within (120) one
hundred twenty days of the close of the fiscal year pursuant to Section
240.14a-101, Schedule 14A.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1) Financial Statements - see Index to Consolidated
Financial Statements on page 18.
(b) Reports on Form 8-K: There were no reports on Form 8-K filed
during the fourth quarter of the fiscal year ended December
31, 1995.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Reorganization with
Firingline Corporation (1)
3.1 Amended and Restated Articles of Incorporation (2)
3.2 Bylaws (10)
3.5 Amendment to Bylaws (10)
4.1 See Articles 3(b), 5 and 6 of Amended
Articles of Incorporation (Exhibit 3.1) (1)
4.2 See Article 2 and Section 8.06 of Amended Bylaws
(Exhibit 3.2) (6)
4.3 Specimen Form of Common Stock Certificate (1)
10.1 Agreement and Plan of Reorganization
(see Exhibit 2.1) (1)
10.2 * Supervising General Agent's Commission Agreement
between JALIC and Ozco Insurance Services, Inc.,
assigned to Firingline Corporation in June 1985 (1)
10.5 * 1985 Incentive Stock Option Plan (1)
10.6 Certificate of Contribution No. 1 of Thomas W. Evans (1)
10.7 Certificate of Contribution No. 2 of Thomas W. Evans (1)
10.8 Shareholder Loan Restructuring Agreement (1)
10.10 Lease Agreement with Westside Associates, Ltd. (2)
</TABLE>
15
<PAGE> 18
<TABLE>
<S> <C>
10.14 * 1990 Stock Option Plan (3)
10.15 * 1990 Non-Employee Director Stock Option Plan (3)
10.16 * 1991 Employment Agreement with Benjamin A. DeMotto (4)
10.17 * 1985 Incentive Stock Option Plan (with 1991 Amendment) (5)
10.18 * 1990 Stock Option Plan (with 1991 Amendment) (5)
10.19 * 1990 Non-Employee Director Stock Option Plan (with 1991 Amendment) (5)
10.20 Addendum No. 2 to Lease Agreement with Westside Associates, Ltd. (5)
10.21 * 1994 Employment Agreement with Benjamin A. DeMotto (7)
10.22 Quota share Coinsurance, Assumption Reinsurance Agreement, effective December 31, 1994,
between JALIC and Central United Life Insurance Company of Houston, Texas (9)
10.23 Promissory Note dated January 24, 1996, issued to Benjamin A. DeMotto for $285,000 loan (11)
10.24 Promissory Note dated February 9, 1996, issued to Benjamin A. DeMotto, for $92,000 loan (11)
16.1 Letter from Price Waterhouse LLP, dated December 21, 1994, regarding change of independent auditors (8)
21.1 List of Subsidiaries (1)
27 Financial Data Schedule (11)
28.1 Amended Certificate of Authority of JALIC issued by the California Department of Insurance (1)
</TABLE>
________________________
(1) Previously filed with Registrant's Registration Statement No. 2-99302 on
Form S-1, effective September 18, 1985. **
(2) Previously filed with Registrant's Quarterly Report on Form 10-Q for the
quarter ending June 30, 1988. **
(3) Previously filed with Registrant's Quarterly Report on Form 10-Q for the
quarter ending September 30, 1990. **
(4) Previously filed with Registrant's Quarterly Report on Form 10-Q for the
quarter ending June 30, 1991. **
(5) Previously filed with Registrant's Annual Report on Form 10-K for the
fiscal year ending December 31, 1991. **
(6) Previously filed with Registrant's Quarterly Report on Form 10-QSB for
the quarter ending March 31, 1994. **
(7) Previously filed with Registrant's Quarterly Report on Form 10-QSB for
the quarter ending September 30, 1994. **
(8) Previously filed with Registrant's Report on Form 8-K filed December 23,
1994. **
(9) Previously filed with Registrant's Report on Form 10-KSB for the fiscal
year ending December 31, 1994. **
16
<PAGE> 19
(10) Previously filed with Registrant's Report on Form 10-QSB for the quarter
ending March 31, 1995. **
(11) Filed herewith.
* The documents filed or incorporated by reference as Exhibits 10.2,
10.5, 10.14 through 10.19, and 10.21 hereto constitute management
contracts or compensatory plans or arrangements.
** Incorporated by reference from the documents described above.
17
<PAGE> 20
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors....................................... 19
Consolidated Balance Sheet - December 31, 1995....................... 20
Consolidated Statements of Operations for the years ended
December 31, 1995 and 1994.................................. 22
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1995 and 1994.............. 23
Consolidated Statement of Cash Flows for the years ended
December 31, 1995 and 1994.................................. 24
Notes to Consolidated Financial Statements........................... 25
</TABLE>
18
<PAGE> 21
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
John Adams Life Corporation
We have audited the accompanying consolidated balance sheet of John Adams Life
Corporation and subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 1995. 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 audits.
We conducted our audits 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 audits provide 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 John Adams Life
Corporation and subsidiaries at December 31, 1995, and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Los Angeles, California
March 22, 1996
19
<PAGE> 22
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET--DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C>
CASH AND INVESTMENTS
Cash................................................. $ 788,102
Bonds:
Available for sale, at fair value
(amortized cost of $8,805,950)..................... 8,906,376
Trading, at fair value
(amortized cost of $2,081,423)..................... 2,099,110
Policy loans, net of unearned interest of $369,475... 6,186,470
---------------
17,980,058
REINSURANCE RECOVERABLE................................ 2,561,886
DEFERRED POLICY ACQUISITION COSTS, less reimbursement
of deferred policy acquisition costs due to
reinsurance........................................ 3,930,237
ACCOUNTS RECEIVABLE.................................... 9,474
ACCRUED INVESTMENT INCOME ............................. 141,217
OTHER ASSETS .......................................... 302,005
---------------
Total assets .................................... $ 24,924,877
===============
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE> 23
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET--DECEMBER 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
LIABILITIES:
POLICY LIABILITIES
Future life benefits and other policy obligations. $ 16,680,871
Deferred revenue ................................. 683,516
---------------
17,364,387
DUE TO REINSURERS .................................. 1,415,079
OTHER LIABILITIES .................................. 635,494
---------------
19,414,960
---------------
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 gain on bonds available for sale,
net of deferred policy acquisition costs
adjustment...................................... 54,098
Retained earnings--deficit........................ (779,978)
---------------
5,528,667
Unearned restricted stock compensation............ (18,750)
---------------
5,509,917
---------------
Total liabilities and shareholders' equity...... $ 24,924,877
===============
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE> 24
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
REVENUES:
Premiums and policy charges............ $ 1,542,540 $ 1,931,605
Premiums ceded......................... (776,768) (852,519)
------------- -------------
Net Premiums and policy charges........ 765,772 1,079,086
Interest on policy loans............... 530,865 725,223
Investment income, net................. 717,916 772,829
Net realized investment gains (losses). (45,882) 6,822
Net unrealized investment gains(losses) 195,635 (448,124)
------------- -------------
2,164,306 2,135,836
------------- -------------
BENEFITS AND EXPENSES:
Benefits incurred ..................... 1,209,079 2,501,559
Reinsurance recoveries................. (343,794) (1,216,990)
------------- -------------
Net benefits incurred.................. 865,285 1,284,569
Interest on policyholders'
accumulation accounts................ 478,516 528,101
Operating costs and expenses........... 906,571 1,074,220
Amortization of deferred policy
acquisition costs ................... 116,951 164,722
------------- -------------
2,367,323 3,051,612
------------- -------------
Net loss............................. $ (203,017) $ (915,776)
============= =============
Net loss per share........................ $ (0.07) $ (0.32)
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE> 25
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock
------------------------
Unearned Net
Restricted Unrealized Retained
Number of Stock Gains * Earnings
Shares Amount Compensation (Losses) (Deficit)
--------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993.... 2,864,700 $6,254,547 $ (93,750) $ 166,070 $ 338,815
Net loss..................... - - - - (915,776)
Amortization of Unearned
Restricted Stock .......... - - 37,500 - -
Change in net unrealized
gains on bonds net of
deferred policy acquisition
costs adjustment............ - - - (464,056) -
---------- ----------- ----------- ----------- -----------
Balance at December 31, 1994.... 2,864,700 6,254,547 (56,250) (297,986) (576,961)
Net loss .................... - - - - (203,017)
Amortization of Unearned
Restricted Stock .......... - - 37,500 - -
Change in net unrealized
losses on bonds, net of
deferred policy acquisition
costs adjustment ........... - - - 352,084 -
---------- ----------- ----------- ----------- -----------
Balance at December 31, 1995.... 2,864,700 $6,254,547 $ (18,750) $ 54,098 $ (779,978)
========== =========== =========== =========== ===========
</TABLE>
* Relates to bonds available for sale.
The accompanying notes are an integral part of these statements.
23
<PAGE> 26
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (203,017) $ (915,776)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Net sales of bonds held for trading................... 60,898 1,036,005
Net realized investment losses (gains)................ 45,882 (6,822)
Net unrealized investment (gains) losses.............. (195,635) 448,124
Net accretion of investment premiums and discounts.... 889 1,136
Policy loans.......................................... 132,252 1,793,049
Reinsurance recoverable............................... 2,048,576 (2,147,879)
Accounts receivable................................... 10,473 8,162
Other assets.......................................... 433,720 (17,420)
Deferred policy acquisition costs before effect of
unrealized investment gains/losses.................. (491,500) 41,612
Accrued investment income............................. 32,352 (8,782)
Policy liabilities.................................... (2,351,231) (1,389,487)
Amortization of unearned restricted stock compensation 37,500 37,500
Amounts due to reinsurers............................. (1,620,910) 2,172,740
Other liabilities..................................... 167,222 311,069
--------------- ---------------
Net cash provided by (used in) operating activities... (1,892,529) 1,363,231
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.............................. (3,794,464) (3,378,354)
Sales, maturities and repayments of principal on
investments......................................... 3,718,635 2,113,129
--------------- ---------------
Net cash used in investing activities................... (75,829) (1,265,225)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholder fund receipts.............................. 2,361,459 (106,848)
--------------- ---------------
Net cash provided by (used in) financing activities..... 2,361,459 (106,848)
--------------- ---------------
INCREASE (DECREASE) IN CASH.................................. 393,101 (8,842)
CASH AT BEGINNING OF YEAR................................... 395,001 403,843
--------------- ---------------
CASH AT END OF YEAR.......................................... $ 788,102 $ 395,001
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE> 27
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) Summary of significant accounting policies
Basis of presentation
The accompanying consolidated financial statements include the accounts of John
Adams Life Corporation (the Company) and its subsidiaries, John Adams Life
Insurance Company of America (the Life Company) and Firingline Corporation
(Firingline). The Company is engaged through its subsidiaries in the sale and
issuance of life and annuity insurance. All significant intercompany
transactions and balances have been eliminated in consolidation.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which vary from statutory accounting
practices prescribed or permitted by insurance regulatory authorities.
Dividend payments to the Company by the Life Company are limited to the greater
of ten percent of the Life Company's statutory capital and surplus as of the
preceding year end, or the prior year's statutory net income. Dividend payments
in excess of those amounts would require prior regulatory approval.
The Life Company is required by the California Department of Insurance
to maintain statutory basis capital and surplus of $2,000,000 as of December 31,
1995. This amount will increase $700,000 per year through December 31, 1999, at
which time its minimum statutory basis capital and surplus must be $5,000,000.
The Life Company's statutory basis capital and surplus at December 31, 1995 is
$2,000,276. This amount of capital and surplus results in a risk-based capital
well in excess of the amount required by regulatory authorities. However,
failure to meet the minimum capital and surplus targets could result in a
regulatory review. Management recognizes that the Company must generate
additional resources or other reductions in operating costs to enable it to
continue operations. Management's plans include continued marketing of its
existing single and flexible premium annuity products which management
believes will be profitable. In addition, the Company's majority shareholder
has the ability and intent to provide sufficient capital resources, if
necessary, to fund its operations through December 31, 1996.
25
<PAGE> 28
Statutory amounts of the Life Company are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
<S> <C> <C>
Capital and surplus ................. $2,000,276 $1,767,263
========== ==========
Net loss ............................ $ 400,651 $ 110,181
========== ==========
</TABLE>
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.
In the event that a policyholder has borrowed up to the maximum cash value in
the policy and does not pay the annual policy premium plus interest on the
loan, the policy is lapsed. When a policy lapses, the loan is written off by a
charge to surrender expense. Benefits incurred include approximately
$1,190,000 and $860,000 in surrender expense for the years ended December 31,
1995 and 1994, respectively. Benefits incurred also include approximately
$200,000 and $260,000 for the years ended December 31, 1995 and 1994 of excess
interest paid to policyholders on traditional life insurance products. The
calculation of the reserve for future policy benefits includes the cost of
surrenders and excess interest in the overall reserve calculation.
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. Expenses include
interest credited to policy account balances and benefit claims incurred in
excess of policy account balances.
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.
26
<PAGE> 29
Deferred policy acquisition costs
The costs of acquiring new business, principally the excess of new commissions
over renewal commissions and other related policy underwriting and issuance
costs, are capitalized and amortized over the policy term in proportion to
related premium income for traditional life insurance products. For interest
sensitive life-type contracts and investment contracts, deferred policy
acquisition costs are amortized over the lives of the contracts in relation to
the present value of the expected 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. Reimbursements from reinsurers, which were
deferred, totaled approximately $100,000 and $420,000 for the years ended
December 31, 1995 and 1994, respectively.
See "Bonds" following regarding adjustment to deferred policy acquisition costs
for unrealized gains (losses) on bonds available for sale.
Deferred policy acquisition costs, net of accumulated amortization at December
31, 1995 are summarized as follows:
<TABLE>
<S> <C>
Total amount capitalized.................$5,403,024
Reimbursement due to reinsurance.........(1,472,787)
-----------
$3,930,237
===========
</TABLE>
Reinsurance
Reinsurance premiums, commissions, and expense reimbursements on reinsured
business are accounted for on a basis consistent with those used in accounting
for the original policies issued and the terms of the reinsurance contracts.
Premiums and benefits ceded to other companies have been reported as a
reduction of premium revenue and benefits. Expense reimbursements received in
connection with reinsurance ceded have been accounted for as a reduction of the
related policy acquisition costs or, to the extent such reimbursements exceed
the related acquisition costs, as other revenue. All reinsurance receivables
are reported as assets.
Bonds
In accordance with Statement of Financial Accounting Standards No. 115 (SFAS No.
115), "Accounting for Certain Investments in Debt and Equity Securities," bonds
available for sale are carried at aggregate fair value, with net unrealized
gains or losses credited directly to shareholders' equity, net of any adjustment
to deferred policy acquisition costs (DPAC) and any applicable deferred tax. The
DPAC offset to the unrealized appreciation or depreciation represents a
27
<PAGE> 30
valuation adjustment of DPAC that would have been required as a charge or
credit to operations had such unrealized amounts been realized. At December 31,
1995, deferred acquisition costs were decreased by approximately $46,328 as a
result of the unrealized loss on bonds available for sale. Bonds held for
trading are carried at aggregate fair value with unrealized gains or losses
credited 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.
Policy loans
Policy loans are recorded at the unpaid principal balance, less interest
collected in advance. Interest on policy loans is recognized using the
effective interest method.
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
Deferred income tax assets and liabilities, if any, reflect the tax effects of
temporary differences between the carrying value of assets and liabilities for
financial reporting purposes and the corresponding amounts reported for income
tax purposes. Deferred tax assets are also established for tax loss and credit
carryforwards. A valuation allowance is required to the extent that it is more
likely than not that a deferred tax asset will not be realized.
28
<PAGE> 31
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 in 1995 and 1994.
The impact of stock options was not dilutive.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ form those estimates.
Reclassifications
Certain reclassifications of prior year amounts have been made to conform with
current year classifications.
(2) Significant transactions
The Company sells its policies through independent life insurance agents that
are compensated on a commission basis. At December 31, 1995, the Company had
contractual arrangements with approximately 390 agents. In 1995, two agencies
provided approximately 82% of the Company's first year premium income.
In December 1994, the life Company entered into a coinsurance/assumption
agreement with a Texas domiciled life insurance company (the "Reinsurer"). The
agreement covered the Life Company's forty-eight single premium whole-life
policies (a closed block of the Life Company's business) and provided for the
transfer of all of the risks under these policies and the administration of the
policies to the Reinsurer. The agreement also provides for complete assumption
of the policies by the Reinsurer upon approval of the agreement by the
California Department of Insurance. Such approval was received in March 1995.
At December 31, 1994, no gain or loss resulted from this transaction other than
a $177,000 loss recorded as a result of the sale of certain bonds in January
1995 to fund a reserve transfer. This transaction resulted in a statutory gain
to the life Company of $303,000 in 1994.
29
<PAGE> 32
(3) Bonds
The amortized cost, gross unrealized gains and losses and estimated fair value
of bonds at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Gross Unrealized Estimated
Amortized --------------------- Fair
Available for Sale Cost Gains Losses Value
------------------ ------------ ------------------------- -----------
<S> <C> <C> <C> <C>
U.S. Government $1,974,400 $16,725 - $1,991,125
Corporate Securities 817,354 52,898 2,947 867,305
Mortgage-Backed Securities 4,919,035 90,792 77,921 4,931,906
Public Utilities Bonds 1,095,161 21,341 462 1,116,040
----------- --------- ----------- -----------
Held for Sale $8,805,950 $181,756 $81,330 $8,906,376
=========== ========= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Unrealized Estimated
Amortized --------------------- Fair
Trading Cost Gains Losses Value
------- ------------ ------------------------- -----------
<S> <C> <C> <C> <C>
Mortgage-Backed Securities $1,588,940 25,466 $42,771 $1,571,635
Public Utilities Bonds 492,483 34,992 - 527,475
----------- --------- ----------- -----------
Trading $2,081,423 $60,458 $42,771 $2,099,110
=========== ========= =========== ===========
</TABLE>
30
<PAGE> 33
The amortized cost and estimated fair value of all bonds including those
available for sale and trading are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations.
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------------------
Available for Sale Securities for Trading
---------------------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Maturity:
Due 1997 - 2001 $100,000 $113,625 - -
Due after 2001 3,786,915 3,860,845 $492,483 $527,475
----------- ----------- ----------- -----------
Subtotal 3,886,915 3,974,470 492,483 527,475
Mortgage-Backed Securities 4,919,035 4,931,906 1,588,940 1,571,635
----------- ----------- ----------- -----------
$8,805,950 $8,906,376 $2,081,423 $2,099,110
=========== =========== =========== ===========
</TABLE>
Bonds with a fair value of $645,925 are on deposit with insurance regulatory
authorities at December 31, 1995.
Proceeds from the sales of available for sale securities during 1995 and 1994
were $3,700,000 and $2,100,000; gross gains of $26,000 and $40,000 gross
losses $72,000 and $33,000 were realized on those sales, respectively.
The components of net unrealized gains (losses) are as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Gross unrealized gains/losses on
bonds available for sale......... $ 100,426 $ (705,379)
Deferred policy acquisition costs.. (46,328) 407,394
------------ ------------
$ 54,098 $ (297,985)
============ ============
</TABLE>
Investment income, net of related expenses, was received from the following
sources:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Investment securities ............ $ 750,318 $ 834,016
Other ............................ 16,678 (16,407)
------------- -------------
766,996 817,609
Investment expenses .............. 49,080 44,780
------------- -------------
Investment income, net ........... $ 717,916 $ 772,829
============= =============
</TABLE>
31
<PAGE> 34
Concentrations of credit risk with respect to bonds are limited due to the
number of issues owned and their dispersion across many industries and
geographic areas. Accordingly, at December 31, 1995, the Company had no
significant concentration of credit risk.
The fair value for bonds is based on values obtained from independent pricing
services.
The Company places its temporary cash investments with high-credit quality
financial institutions and, by corporate policy, limits the amount of credit
exposure to any one financial institution.
(4) Future policy benefits
Ordinary insurance in force was $138,578,000 at December 31, 1995. Of this
amount, $77,544,000 was reinsured.
The Life Company's maximum net retention on any one life is $50,000; however,
it remains contingently liable with respect to any reinsurance ceded, and would
become actually liable if the assuming company was unable to meet its
obligations under the reinsurance treaties.
Under a modified coinsurance agreement, the Company maintains investments in a
trust account for the benefit of the reinsurers and the policyholders. At
December 31, 1995, the carrying value of the trust was $1,400,000 and is
included in the Company's available for sale portfolio.
To minimize its exposure to significant losses from reinsurance insolvencies,
the Company evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristics of the reinsurers. As of December 31,
1995, Transamerica Occidental Life Insurance Company accounted for more than
10% of total amounts recoverable from all reinsurers. The remaining reinsurance
recoverables were spread over seven reinsurers.
(5) Income taxes
Income taxes do not bear the expected relationship to income because of
differences in the recognition of revenue and expense for tax and financial
reporting purposes. The tax effects of such differences at December 31, 1995
and 1994 are:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Federal income tax (benefit)
at statutory rate $ (69,026) $ (311,364)
Valuation allowance 69,026 311,364
----------- -----------
$ -0- $ -0-
=========== ===========
</TABLE>
32
<PAGE> 35
The significant components of the Company's net deferred income tax asset at
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred Tax Assets
Net operating loss carryforward $2,007,071 $1,771,856
Deferred revenue 211,177 193,232
Unrealized investment loss - 161,744
Other 193,502 74,173
----------- -----------
Subtotal $2,411,750 $2,201,005
Deferred Tax Liabilities
Deferred policy acquisition
costs 1,277,662 1,131,915
Difference in reserves for
tax and financial
reporting purposes 180,482 371,064
Unrealized investment gain 18,393 -
----------- -----------
Subtotal 1,476,537 1,502,979
Valuation allowance (935,213) (698,026)
----------- -----------
Total $ -0- $ -0-
=========== ===========
</TABLE>
The Company and Firingline join in the filing of a consolidated Federal tax
return and a combined state tax return. The Life Company files a separate
Federal return and has no state income tax filing requirements other than
premium taxes. The Company and Firingline and the Life Company have reflected
tax net operating losses on their respective Federal income tax returns for
several years (including 1995).
The Company and Firingline's consolidated net operating loss carryforward at
December 31, 1995 is approximately $1,900,000. The consolidated net operating
losses will expire at various times between 1998 and 2099. The Life Company's
net operating loss carryforward at December 31, 1995 is approximately
$4,100,000. The Life Company's net operating losses will expire at various
times between 1998 and 2009.
Deferred tax assets are reduced by a valuation allowance if it is more likely
than not that some portion or all of the deferred tax will not be realized. As
of December 31, 1995, the Company has deferred tax assets primarily
attributable to net operating losses. As the Company has been experiencing tax
net operating losses for several years, realization is considered uncertain and
a valuation allowance has been recorded. The net increase in the valuation
allowance for the year ended December 31, 1995 is approximately $225,860 to
eliminate increases in the deferred tax asset.
Under the Life Insurance Company Income Tax Act of 1959, the Life Company was
permitted to recognize certain deductions each year in determining gain or loss
from operations. Such deductions were
33
<PAGE> 36
accumulated in a special tax memorandum account which was frozen at December
31, 1983 in the amount of $2,391,000 pursuant to the Deficit Reduction Act of
1984. This amount would be subject to tax if distributions are made therefrom
or certain other criteria not met. Management is of the opinion that no
federal income taxes applicable to "policyholders' surplus" will become payable
in the foreseeable future.
(6) Shareholders' equity
The Company currently has two stock option plans in effect and one expired
stock option plan.
In 1985, the Company adopted an Incentive Stock Option Plan (The "1985 Stock
Option Plan"), which authorizes the grant of options to purchase up to 400,000
shares of common stock to key employees of the Company; however, directors who
are not employees and employees who own ten percent or more of the Company's
common stock are not eligible to receive options under the 1985 Option Plan.
Although this plan expired in 1995, and no additional options may be issued
under it, there remain options outstanding and exercisable under this plan.
In 1990, the shareholders approved a non-statutory stock option plan (the "1990
Option Plan") for certain key employees, agents and consultants. The 1990
Option Plan allows for the granting of up to 800,000 shares. These options
expire at the Company's determination or ten years after the date of grant or
sooner pursuant to the stock option agreement. The Company, at its discretion,
may grant, either by attachment to an option at time of grant, or on a separate
basis, a Stock Appreciation Right. The Stock Appreciation Rights may be
exercised only to the extent that the option to which it is attached is
exercisable, or if issued separately, pursuant to the terms of the Stock
Appreciation Rights Agreement under the 1990 Option Plan. At December 31,
1995, no Stock Appreciation Rights have been granted.
In 1990, the shareholders approved the Company's 1990 Non-Employee Director
Stock Option Plan (the "Director Plan") for non-employee directors. Each
non-employee member of the Board is eligible to receive an automatic option
grant under the Director Plan in the amount of 10,000 shares of common stock
upon his or her initial election or appointment to the Board and will be
entitled to automatic grants of 5,000 common shares at each successive annual
meeting at which he or she is elected a member of the Board. The Director Plan
allows for the granting of up to 150,000 shares in total, and the options
expire after 10 years from date of grant.
All options under the above noted plans are exercisable at prices not less than
fair market value on the date of grant. The number of outstanding options are
considered in determining earnings per share.
34
<PAGE> 37
A summary of options outstanding at December 31, 1995, is as follows:
<TABLE>
<CAPTION>
Options Option
Outstanding Options Options Price of
and Granted Exercised Outstanding
Option Plan Exercisable in 1995 in 1995 Options
- ----------- ----------- ------- --------- -----------
<S> <C> <C> <C> <C>
1985 Option Plan 20,000 0 0 $1.50 to $12.63
1990 Option Plan 224,600 25,000 0 $0.50 to $ 1.06
Director Plan 55,000 10,000 0 $0.41 to $ 1.38
</TABLE>
No stock options have been exercised since the inception of any of the above
plans.
Under employment and consulting agreements the Company issued 300,000 shares of
restricted common stock in 1991. Rights in and to the securities vest, subject
to the covenants stipulated in the agreements, as follows: 50,000 shares vested
on July 1, 1992, and 250,000 shares will vest on July 1, 1996. The Company
recognized $37,500 of expense related to these compensatory agreements during
1995 and 1994.
The Company has 5,000,000 shares of preferred stock authorized that are
issuable in series with such rights, preferences, privileges and restrictions
as the Board of Directors of the Company determines, including voting rights,
redemption provisions, dividend rates, liquidation preferences and conversion
rights. No such series are presently established and no shares of preferred
stock were outstanding as of December 31, 1995.
(7) Contingencies
In the normal course of business, the Company and its subsidiaries occasionally
become parties to litigation. In the opinion of management, based on advice
of legal counsel, there is no pending or threatened litigation involving the
Company or its subsidiaries that will have a material adverse effect upon the
financial condition or results of operations of the Company or its
subsidiaries.
35
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By Benjamin A. DeMotto
------------------------
Benjamin A. DeMotto
Chairman of the Board
and President
Date: March 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Benjamin A. DeMotto Chairman of the Board, March 26, 1996
- --------------------- Chief Executive Officer,
Benjamin A. DeMotto President and Director
Nicholas Del Sesto Executive Vice President March 26, 1996
- --------------------- and Director
Nicholas Del Sesto
Alvin S. Milder Vice President, Secretary March 26, 1996
- --------------------- and Director
Alvin S. Milder
Robert E. Adams Director March 26, 1996
- ---------------------
Robert E. Adams
L. E. Chenault Director March 26, 1996
- ---------------------
L. E. Chenault
Bernadette de Vera Controller March 26, 1996
- ---------------------
Bernadette de Vera
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Reorganization with
Firingline Corporation (1)
3.1 Amended and Restated Articles of Incorporation (2)
3.2 Bylaws (10)
3.5 Amendment to Bylaws (10)
4.1 See Articles 3(b), 5 and 6 of Amended
Articles of Incorporation (Exhibit 3.1) (1)
4.2 See Article 2 and Section 8.06 of Amended Bylaws
(Exhibit 3.2) (6)
4.3 Specimen Form of Common Stock Certificate (1)
10.1 Agreement and Plan of Reorganization
(see Exhibit 2.1) (1)
10.2 * Supervising General Agent's Commission Agreement
between JALIC and Ozco Insurance Services, Inc.,
assigned to Firingline Corporation in June 1985 (1)
10.5 * 1985 Incentive Stock Option Plan (1)
10.6 Certificate of Contribution No. 1 of Thomas W. Evans (1)
10.7 Certificate of Contribution No. 2 of Thomas W. Evans (1)
10.8 Shareholder Loan Restructuring Agreement (1)
10.10 Lease Agreement with Westside Associates, Ltd. (2)
10.14 * 1990 Stock Option Plan (3)
10.15 * 1990 Non-Employee Director Stock Option Plan (3)
10.16 * 1991 Employment Agreement with Benjamin A. DeMotto (4)
10.17 * 1985 Incentive Stock Option Plan (with 1991 Amendment) (5)
10.18 * 1990 Stock Option Plan (with 1991 Amendment) (5)
10.19 * 1990 Non-Employee Director Stock Option Plan (with 1991 Amendment) (5)
10.20 Addendum No. 2 to Lease Agreement with Westside Associates, Ltd. (5)
10.21 * 1994 Employment Agreement with Benjamin A. DeMotto (7)
10.22 Quota share Coinsurance, Assumption Reinsurance Agreement, effective December 31, 1994, between JALIC and Central United
Life Insurance Company of Houston, Texas (9)
10.23 Promissory Note dated January 24, 1996, issued to Benjamin A. DeMotto for $285,000 loan (11)
10.24 Promissory Note dated February 9, 1996, issued to Benjamin A. DeMotto, for $92,000 loan (11)
16.1 Letter from Price Waterhouse LLP, dated December 21, 1994, regarding change of independent auditors (8)
21.1 List of Subsidiaries (1)
27 Financial Data Schedule (11)
28.1 Amended Certificate of Authority of JALIC issued
by the California Department of Insurance (1)
</TABLE>
- ------------------------
(1) Previously filed with Registrant's Registration Statement No.
2-99302 on Form S-1, effective September 18, 1985. **
(2) Previously filed with Registrant's Quarterly Report on Form 10-Q for the
quarter ending June 30, 1988. **
(3) Previously filed with Registrant's Quarterly Report on Form 10-Q for the
quarter ending September 30, 1990. **
<PAGE> 40
(4) Previously filed with Registrant's Quarterly Report on Form 10-Q for the
quarter ending June 30, 1991. **
(5) Previously filed with Registrant's Annual Report on Form 10-K for the
fiscal year ending December 31, 1991. **
(6) Previously filed with Registrant's Quarterly Report on Form 10-QSB for
the quarter ending March 31, 1994. **
(7) Previously filed with Registrant's Quarterly Report on Form 10-QSB for
the quarter ending September 30, 1994. **
(8) Previously filed with Registrant's Report on Form 8-K filed December 23,
1994. **
(9) Previously filed with Registrant's Report on Form 10-KSB for the fiscal
year ending December 31, 1994. **
(10) Previously filed with Registrant's Report on Form 10-QSB for the quarter
ending March 31, 1995. **
(11) Filed herewith.
* The documents filed or incorporated by reference as Exhibits 10.2,
10.5, 10.14 through 10.19, and 10.21 hereto constitute management
contracts or compensatory plans or arrangements.
** Incorporated by reference from the documents described above.
<PAGE> 1
EXHIBIT 10.23
PROMISSORY NOTE
$285,000.00 Los Angeles, California, January 24, 1996.
On demand after date, for value received the undersigned promises to
pay to Benjamin A. DeMotto, or order, at 11845 W. Olympic Blvd., Los Angeles,
California the sum of Two hundred eighty-five thousand and No/100 Dollars, and
to pay interest on the unpaid principal amount hereof from time to time
outstanding, from the date hereof until paid, at a rate equal to one percent
(1%) above the prime rate for unsecured loans as announced from time to time by
City National Bank, or the highest rate permitted by law, whichever is lower.
Interest shall be paid in semiannual installments on July 31st and January 31st
of each and every year hereafter; the first interest payment shall be due July
31, 1996.
Should interest not be so paid it shall thereafter bear like interest
as the principal. Should default be made in payment of interest when due the
whole sum of principal and interest shall become immediately due at the option
of the holder of this note. Principal and interest payable in lawful money of
the United States. If action be instituted on this note, the undersigned
promises to pay such sum as the Court may fix as attorney's fees.
John Adams Life Corporation
By Alvin S. Milder
----------------------------------
Secretary
<PAGE> 1
EXHIBIT 10.24
PROMISSORY NOTE
$92,000.00 Los Angeles, California, February 9, 1996.
On demand after date, for value received the undersigned promises to
pay to John Adams Life Corporation, or order, at 11845 W. Olympic Blvd., Los
Angeles, California the sum of Ninety-two thousand and No/100 Dollars, and to
pay interest on the unpaid principal amount hereof from time to time
outstanding, from the date hereof until paid, at a rate equal to one percent
(1%) above the prime rate for unsecured loans as announced from time to time by
City National Bank, or the highest rate permitted by law, whichever is lower.
Interest shall be paid in semiannual installments on July 31st and January 31st
of each and every year hereafter; the first interest payment shall be due July
31, 1996.
Should interest not be so paid it shall thereafter bear like interest
as the principal. Should default be made in payment of interest when due the
whole sum of principal and interest shall become immediately due at the option
of the holder of this note. Principal and interest payable in lawful money of
the United States. If action be instituted on this note, the undersigned
promises to pay such sum as the Court may fix as attorney's fees.
Firingline Corporation
By Benjamin A. DeMotto
------------------------------------
Chief Executive Officer
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 788,102
<SECURITIES> 11,005,486
<RECEIVABLES> 9,474
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,994,249
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,676,541
<CURRENT-LIABILITIES> 2,050,573
<BONDS> 0
0
0
<COMMON> 6,254,547
<OTHER-SE> (798,728)
<TOTAL-LIABILITY-AND-EQUITY> 26,676,541
<SALES> 0
<TOTAL-REVENUES> 2,164,306
<CGS> 0
<TOTAL-COSTS> 2,367,323
<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> (203,017)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
