<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1996
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)
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) (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. [X]
The issuer's revenues from continuing operations for the year ended
December 31, 1996, were $1,035,122.
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 5, 1997, was approximately $605,438.
The number of shares outstanding of the issuer's common stock (no par
value) as of March 20, 1997, 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, 1996).
PART III
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
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 was incorporated under the laws of the
State of California in 1975. 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.
During 1996, the Company entered into an agreement (the "Stock Purchase
Agreement") pursuant to which the Company agreed to sell to Unified Life
Insurance Company ("Unified"), a Texas corporation, the 49,803 shares of John
Adams Life Insurance Company of America ("JALIC") common stock owned by the
Company (the "JALIC Shares"). The JALIC Shares comprised 99.6% of the issued and
outstanding shares of common stock of JALIC. In January 1997, the Company
completed the sale of the JALIC Shares to Unified. (See Note 2 to the Company's
consolidated financial statements for further description of the sale of the
JALIC Shares.) As a result of the sale of the JALIC Shares, as of January 1,
1997, the Company, through its wholly-owned subsidiary, Firingline Corporation,
operates as a life insurance sales agency. Unless the context requires
otherwise, John Adams Life Corporation and Firingline, a California corporation,
are herein referred to as the "Company."
The Background and Reasons for the Sale of the JALIC Shares
The conditions surrounding JALIC's business and its prospects changed
over a period of years as a result of a number of interrelated factors. These
include, without limitation, changes in federal tax laws and regulatory changes
in California. It became more difficult for JALIC to obtain new business in an
increasingly competitive environment. Declining sales of policies kept JALIC's
unit expenses high, adversely affecting profits and contributing to operating
losses in recent years.
In reaching a unanimous decision that the sale of the JALIC Shares was
in the best interests of the Company and its shareholders, the Company's Board
of Directors was cognizant of all of the foregoing factors, and was motivated
principally by the changing regulatory environment affecting the conduct of
JALIC's business in California. Under requirements imposed by the California
Department of Insurance (the "California DOI"), JALIC was required to phase-in
increases to its capital and surplus account periodically, so that on or before
December 31, 1999, it would have a minimum capital and surplus of $5,000,000.
Under the provisions of the California Insurance Code, insurance
companies, such as JALIC, that hold a Certificate of Authority issued prior to
December 31, 1989, are "grandfathered", i.e., their capital and surplus
requirements are allowed to remain at $1,000,000 until
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December 31, 1999. However, more stringent capital and surplus phase-in
increases were imposed upon JALIC by the California DOI because of JALIC's
statutory losses in recent years. JALIC's failure to comply with such stricter
requirements would have jeopardized its authorization to write life insurance in
California.
The Board of Directors believed that it would have constituted a
significant hardship for JALIC to continue to comply with the stricter
requirements of the California DOI. For example, in order to meet the California
DOI's initial requirement to increase capital and surplus to at least $2,000,000
on or before December 31, 1995, it was necessary for the Company to borrow funds
from Benjamin A. DeMotto, a director, President and Chief Executive Officer, and
a principal shareholder of the Company. (See Note 1 to the Company's
consolidated financial statements for further description of the loan.)
The Company without JALIC will experience a substantially lessened
regulatory burden in the operation of its remaining business, including the
elimination of capital and surplus requirements.
Neither the common stock nor the assets of Firingline were sold by the
Company, and Firingline remains a wholly-owned subsidiary of the Company.
Firingline intends to continue to market JALIC's products pursuant to the
Supervising General Agents Agreement (the "Agency Agreement") between Firingline
and JALIC. The Agency Agreement provides that Firingline will be paid
commissions by JALIC for Firingline's marketing, servicing and other efforts in
connection with the life insurance and annuity products Firingline sells for
JALIC.
In connection with the sale of the JALIC Shares and pursuant to the
Agency Agreement, JALIC will pay Firingline, effective January 1, 1997, a 35%
commission ("Additional Commissions") on certain JALIC life insurance policies,
which were transferred to Unified at the closing of the sale of the JALIC Shares
(the "Closing"). The maximum aggregate amount of Additional Commissions, which
will be paid to Firingline over the three-year period, 1997 through 1999, is
$1,200,000. In connection with the sale of JALIC, $950,000, which represents the
estimated present value of the $1,200,000, will be recorded in the 1997
consolidated financial statements as part of the sales price consideration.
Firingline will also continue to be paid renewal commissions under the Agency
Agreement on all of the JALIC policies transferred to Unified at the Closing.
The amounts of any renewal commissions and any Additional Commissions are
primarily dependent upon the persistency of the policies and there is no
guarantee that any commissions will be earned under the Agency Agreement.
The Company will also continue to be dependent upon certain key
personnel, principally Benjamin A. DeMotto, a director, President and Chief
Executive Officer, and a principal shareholder of the Company.
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Since the Closing, the Company has reduced the amount of leased space
it occupies as the Company's offices. In addition, some employees have been
terminated and certain outside services associated with the operation of a life
insurance business (e.g., actuarial) will no longer be needed. These changes
should result in reduced costs to the Company.
Although no changes in the business of Firingline are contemplated at
present, and management believes that the Company will be able to operate
profitably, there can be no assurance that the Company will not continue to
realize losses in the future. If the Company is not successful in its efforts to
operate profitably, it will be necessary either to locate a purchaser for the
Company or to consider other plans. The Company has not developed any definitive
alternative plan.
Products
In 1996, the Company focused its sales emphasis on JALIC's annuity
products, which include a single premium deferred annuity and a flexible premium
deferred annuity. A substantial portion of the commissions earned were from the
sale of the VaultPlus and the Independence Plan annuities. VaultPlus is a
flexible premium deferred annuity that is available for sale 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.
In 1996, the Company continued its sales of JALIC's principal life
insurance product, the BestLife III policy, an interest sensitive whole life
policy with a level lifetime premium using a current, 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. The Company also markets term life
insurance and other products.
Marketing
JALIC'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, 1996, Firingline
had approximately 400 life insurance general agencies, with one or more agents,
under contract. One agency accounted for approximately 46% of the commissions
earned by Firingline in 1996.
Because the Company does not directly employ sales agents, it has
minimal training expense and low costs associated with supporting
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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.
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 products marketed by the
Company. 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
As a licensed insurance agent, Firingline is subject to regulation by
the California Department of Insurance.
Employees
As of March 21, 1997, the Company had 6 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 1,600 square feet at this location. (This represents a reduction
from the approximately 3,700 square feet that the Company occupied at this
location in 1996.) The Company has a one-year lease that expires February 28,
1998. The Company believes that its present facilities are adequate for its
current level of operations. The Company owns no real property.
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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
In January 1997, the Company distributed its Information Statement
dated December 30, 1996, to its shareholders of record as of November 22, 1996,
in connection with the sale by the Company to Unified of the JALIC Shares. The
sale was approved, pursuant to the California Corporations Code and the
Company's Restated Articles of Incorporation, by written consent of shareholders
holding a majority of the voting securities of the Company. Benjamin A. DeMotto,
a director, President and Chief Executive Officer of the Company and holder of
1,380,000 (48.2%) shares of the issued and outstanding stock of the Company, and
Nicholas Del Sesto, a director and Executive Vice President of the Company and
holder of 501,000 (17.5%) shares of the issued and outstanding stock of the
Company, each executed his written consent to the sale on January 22, 1997.
The Company did not submit any matters to a vote of its security
holders during the fourth quarter of 1996.
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
------------- ---- ---
<S> <C> <C>
1996:
First Quarter............... $ 9/16 $ 9/16
Second Quarter.............. 25/32 9/16
Third Quarter............... 7/8 5/8
Fourth Quarter.............. 11/16 5/8
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
</TABLE>
5
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As of March 21, 1997, the Company had approximately 75 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 for the
foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Discontinued Operations
In October 1996, the Company agreed to sell its shares of JALIC's
common stock, accordingly, the financial position and operating results of JALIC
are accounted for as a discontinued operation in the Company's consolidated
financial statements included with this report. The loss of approximately
$2,007,000 from discontinued operations includes the loss on the sale of the
JALIC Shares and the write-down of the intangible assets relating to JALIC. (See
Item 1, "Description of Business - The Background and Reasons for the Sale of
JALIC Shares," and Note 2 to the Company's consolidated financial statements for
further description of the results of discontinued operations.)
Results of Continuing Operations
1996 Compared to 1995. The Company's loss from its continuing
operations before benefit for income taxes, totaled $128,000 in 1996 as compared
to a $2,000 loss from its continuing operations in 1995. Total revenues
increased to $1,035,000 in 1996 from $774,000 in 1995 primarily as a result of
increased sales of the Company's products, which resulted in increased
commission income. Commission expenses increased to $712,000 from $380,000 as a
result of increased sales activity. The increase in the ratio of commission
expense to commission income results from the increase in first year policy
sales in relation to renewals.
Due to the current year's loss from operations, the Company did not
incur a tax expense in 1996. Further, no deferred tax benefit was recorded as a
result of the net operating loss that exists at December 31, 1996.
Liquidity and Capital Resources
As a result of the sale of the JALIC Shares, the capital needs of the
Company to meet the minimum statutory capital and surplus requirements of the
California Department of Insurance have been eliminated. (See Item 1,
"Description of Business - The Background and Reasons for the Sale of the JALIC
Shares," and Note 2 to the consolidated financial statements.)
The net proceeds of the sale of the JALIC Shares, which closed in
January 1997, after deducting the amounts due from the Company to JALIC
were approximately $2,700,000, which excludes the estimated present
value of $950,000 for the additional commissions from JALIC. These
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additional commissions can be up to $1,200,000 over a three year period, 1997
through 1999, on certain insurance policies transferred at the closing of the
sale of the JALIC Shares. The Company will also continue to receive renewal
commissions from JALIC under the Agency Agreement. (See Item 1, "Description of
Business - The Background and Reasons for the Sale of the JALIC Shares.") From
the proceeds of the sale of the JALIC Shares, the Company paid the outstanding
balances of the loans made to the Company by its principal shareholder. (See
Note 1 to the Company's consolidated financial statements for further
description of the loans.) The Company believes its cash resources to be
adequate.
Impact of Inflation
Inflation generally has little impact on the sale of life insurance
policies. However, inflation can affect the face amount and type of policy that
the insurance-buying public may prefer at a particular time. Inflation and
interest rate changes 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 products sold by the Company.
ITEM 7. FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements on page 11.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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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 one hundred
twenty days of the close of the fiscal year.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K: On November 5, 1996, the Company filed
a report on Form 8-K, dated October 31, 1996; the item
reported on this form is the October 24, 1996, signing of the
Stock Purchase Agreement by the Company for the sale of its
capital stock of JALIC to Unified Life Insurance Company. On
February 5, 1997, the Company filed a report on Form 8-K; the
item reported on this form is the completion in January 1997,
of the sale by the Company of its 99.6% interest in JALIC to
Unified Life Insurance Company.
(b) 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 Amendments to Bylaws (10)
4.1 See Articles 3(b), 5 and 6 of Amended Articles of Incorporation
(Exhibit 3.1) (2)
4.2 See Article 2 and Section 8.06 of the Bylaws (Exhibit 3.2) (10)
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)
10.6 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>
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<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 a loan (11)
10.24 Promissory Note dated February 9, 1996, issued to Benjamin A.
DeMotto, for a loan (11)
10.25 Letter of intent, dated June 7, 1996, for the sale of JALIC
to Unified Life Insurance Company (12)
10.26 Stock Purchase Agreement, signed October 24, 1996, by and
between Unified Life Insurance Company and John Adams Life
Corporation (13)
10.27 * Amendment, signed October 22, 1996, to Supervising General
Agents Commission Agreement (13)
10.28 Revised Life Coinsurance Treaty with Funds Withheld, effective
July 1, 1996, between JALIC and Unified Life Insurance Company
and Amendment No. 1 (14)
16.1 Letter from Price Waterhouse LLP, dated December 21, 1994,
regarding change of independent auditors (8)
21.1 List of Subsidiaries (1)
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 Report on Form 10-Q for the
quarter ending June 30, 1988. **
( 3) Previously filed with Registrant's Report on Form 10-Q for the
quarter ending September 30, 1990. **
( 4) Previously filed with Registrant's Report on Form 10-Q for the
quarter ending June 30, 1991. **
( 5) Previously filed with Registrant's Report on Form 10-K for
the fiscal year ending December 31, 1991. **
( 6) Previously filed with Registrant's Report on Form 10-QSB for the
quarter ending March 31, 1994. **
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( 7) Previously filed with Registrant's 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) Previously filed with Registrant's Report on Form 10-KSB for the
fiscal year ending December 31, 1995. **
(12) Previously filed with Registrant's Report on Form 8-K filed June
13, 1996. **
(13) Previously filed with Registrant's Report on Form 8-K filed
November 5, 1996. **
(14) Previously filed with Registrant's Report on Form 10-QSB for the
quarter ending September 30, 1996. **
* The documents filed or incorporated by reference as Exhibits 10.2,
10.14 through 10.19, 10.21 and 10.27 hereto constitute management
contracts or compensatory plans or arrangements.
** Incorporated by reference from the documents described above.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors - ......................................... 12
Consolidated Balance Sheet - December 31, 1996 ........................... 13
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 ............................................ 14
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1996 and 1995 ........................ 15
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 ............................................ 16
Notes to Consolidated Financial Statements ............................... 17
</TABLE>
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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, 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 1996. 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, 1996, and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Los Angeles, California
March 21, 1997
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JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET--DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
CASH ................................................ $ 26,630
ACCOUNTS RECEIVABLE ................................. 28,810
ACCRUED INVESTMENT INCOME ........................... 1,266
OTHER CURRENT ASSETS ................................ 30,982
------------
Total current assets ............................ 87,688
ASSETS OF DISCONTINUED OPERATIONS ................... 24,981,004
------------
Total assets .................................. $ 25,068,692
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
NOTES PAYABLE TO SHAREHOLDER ........................ $ 243,429
OTHER LIABILITIES ................................... 171,247
------------
Total current liabilities ....................... 414,676
LIABILITIES OF DISCONTINUED OPERATIONS .............. 21,314,382
------------
21,729,058
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
Retained earnings - deficit ....................... (2,914,913)
------------
3,339,634
------------
Total liabilities and shareholders' equity ...... $ 25,068,692
============
</TABLE>
The accompanying notes are an integral part of these statements.
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JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ---------
REVENUES:
<S> <C> <C>
Commissions ......................... $ 939,759 $ 711,854
Other Income ........................ 95,363 61,715
----------- ---------
1,035,122 773,569
EXPENSES:
Commissions ......................... 711,674 379,814
General and Administrative .......... 451,291 396,012
----------- ---------
1,162,965 775,826
----------- ---------
Loss from Continuing Operations ........ (127,843) (2,257)
Loss from Discontinued Operations ...... (2,007,092) (200,760)
----------- ---------
Net Loss ............................... $(2,134,935) $(203,017)
=========== =========
Per share information:
Loss from continuing operation ......... $ (0.04) $ 0.00
Loss from discontinued operation ....... (0.70) (0.07)
----------- ---------
Net Loss ............................... $ (0.74) $ (0.07)
=========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
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JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<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, 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
gains 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)
Net loss ................... -- -- -- -- (2,134,935)
Amortization of Unearned
Restricted Stock ......... -- -- 18,750 -- --
Change in net unrealized
losses on bonds, net of
deferred policy acquisition
costs adjustment .......... -- -- -- (54,098) --
--------- ---------- -------- --------- -----------
Balance at December 31, 1996 .. 2,864,700 $6,254,547 $ 0 $ 0 $(2,914,913)
========= ========== ======== ========= ===========
</TABLE>
* Relates to bonds available for sale that are included in assets of
discontinued operations.
The accompanying notes are an integral part of these statements.
15
<PAGE> 18
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: ....................... 1996 1995
----------- ---------
<S> <C> <C>
Net loss ............................................... $(2,134,935) $(203,017)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Loss from discontinued operation ..................... 171,153 200,760
Loss on disposal of discontinuing operation .......... 1,835,939 --
Realized investment gains ............................ -- (17,046)
Changes in assets and liabilities:
Accounts receivable .................................. (19,336) 10,473
Other assets ......................................... 94,793 60,599
Accrued investment income ............................ 6,711 3,850
Amortization of unearned restricted stock compensation 18,750 37,500
Other liabilities .................................... 145,161 5,243
----------- ---------
Net cash provided by continuing operations ........... 118,236 98,362
Net cash used in discontinued operation ..................... (351,259) (269,158)
----------- ---------
Net cash provided by (used in) operating activities .. (233,023) (170,796)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments ............................. -- (121,342)
Sales, maturities and repayments of principal on
investments ........................................ -- 296,889
----------- ---------
Net cash provided by investing activities .............. -- 175,547
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuing notes payable .................... 377,000 --
Payments on notes payable .............................. (133,571) --
----------- ---------
Net cash used in financing activities .................. 243,429 --
----------- ---------
INCREASE IN CASH ............................................ 10,406 4,751
CASH AT BEGINNING OF YEAR ................................... 16,224 11,473
----------- ---------
CASH AT END OF YEAR ......................................... $ 26,630 $ 16,224
=========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 19
JOHN ADAMS LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) Summary of significant accounting policies
Organization and 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 (JALIC) and Firingline Corporation (Firingline).
During 1995 and 1996, the Company was engaged through its subsidiaries in the
sale and issuance of life insurance and annuity products. As further described
in Note 2, the Company entered into an agreement in 1996, to sell all of its
shares of JALIC and accounted for JALIC as a discontinued operation. The sale of
JALIC will substantially change the operations of the Company.
The Company sells its policies through independent life insurance agents that
are compensated on a commission basis. At December 31, 1996, the Company had
contractual arrangements with approximately 400 agents. In 1996, one agency
provided approximately 46% of the Company's commissions revenue.
Firingline's sole source of commission revenue at present is from sales of
insurance products issued by JALIC. This intercompany commission revenue is not
eliminated in the accompanying statements of operations as it provides more
meaningful financial results of the continuing operation. All other significant
intercompany transactions and balances have been eliminated in consolidation.
Notes Payable to Shareholder
Notes payable to shareholder are carried at their unpaid balances and bear
interest at prime plus 1%. Interest payments are payable in semi-annual
installments. The principal payments are due upon request. No interest was paid
by the Company in 1996. These notes with accrued interest were repaid in full in
February 1997.
Earnings per share
Earnings per share are computed on the basis of the weighted average number of
shares outstanding during each year. Weighted average shares outstanding totaled
2,864,700 in 1996 and 1995. The impact of stock options was not dilutive.
17
<PAGE> 20
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 from those estimates.
Reclassifications
The 1995 financial statements have been reclassified to conform to the
discontinued operations accounting adopted in 1996.
New accounting standards
In 1995, the FASB issued Statement 123 ("FASB 123"), "Accounting for Stock-Based
Compensation," that is effective for fiscal years beginning after December 15,
1995. FASB 123 establishes a method of accounting for stock-based compensation
that is based on the fair value of stock options and similar instruments and
encourages, but does not require, adoption of that method. The Company has
elected to continue following Accounting Principles Board Opinion No. 25 for
measuring compensation cost. Pursuant to FASB 123, the Company will disclose pro
forma net income and earnings per share calculated as if the recognition and
measurement provisions of the new standard had been adopted; however, for 1996,
the pro forma effect was not material.
(2) Discontinued Operations and Subsequent Event
The Company entered into a Stock Purchase Agreement dated October 24, 1996, as
amended (the "Stock Purchase Agreement"), pursuant to which the Company agreed
to sell the 49,803 shares of the JALIC's common stock (the "JALIC Shares") owned
by the Company to Unified Life Insurance Company ("Unified"). These shares
comprise 99.6% of the issued and outstanding shares of common stock of JALIC.
In January 1997, the Company completed the sale of the JALIC Shares. The
proceeds from the sale recorded in accordance with generally accepted accounting
principles was $3,666,000. This amount is equal to the difference between the
discontinued operations assets and liabilities at December 31, 1996. This
transaction resulted in a loss of $1,836,000 which is recorded in 1996. The
sales proceeds received by the Company in January 1997 consisted of investment
grade securities with a book value of $2,823,000 and a receivable of $950,000
which represents the estimated present value of commissions which will be paid
over a three year period based on the persistency of certain JALIC life
insurance policies.
The financial position, results of operations and cash flows of JALIC are
presented in the accompanying consolidated financial statements as a
discontinued operation.
18
<PAGE> 21
The financial position of the discontinued operations at December 31, 1996, is
summarized in the following table:
<TABLE>
<S> <C>
Assets
Cash ........................................................ $ 1,735,443
Bonds, at fair value (amortized cost of $10,361,226) ....... 10,052,510
Policy loans ................................................ 869,313
Reinsurance recoverable from coinsurance .................... 9,536,176
Deferred policy acquisition costs ........................... 2,680,285
Accrued investment income and other ......................... 107,277
-----------
Total ...................................... $24,981,004
===========
Liabilities
Policy liabilities .......................................... $19,278,924
Deferred revenue and other .................................. 209,905
Due to reinsurers ........................................... 1,825,553
-----------
Total ...................................... $21,314,382
===========
</TABLE>
The reinsurance recoverable of $9,536,176 is due primarily from Unified pursuant
to a reinsurance agreement entered into in 1996.
Summary of operating results of the discontinued operation were as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenue $1,221,882 $1,390,737
========== ==========
Loss from discontinued
operations $ 171,153 $ 200,760
Loss on disposal of
discontinued operations 1,835,939 --
---------- ----------
Total loss on discontinued
operations $2,007,092 $ 200,760
========== ==========
</TABLE>
(3) Income taxes
No income tax benefit has been recorded in the accompanying statements of
operations as no current taxes are payable and a full valuation allowance has
been established for the benefit of any operating loss carryforwards. This
valuation allowance has been recorded as the Company has been experiencing tax
net operating losses for several years.
The Company and Firingline join in the filing of a consolidated Federal tax
return and a combined state tax return. The Company and Firingline have
reflected tax net operating losses on their respective Federal income tax
returns for several years (including 1996). JALIC files a separate life
insurance company tax return.
19
<PAGE> 22
The Company and Firingline's consolidated net operating loss carryforward at
December 31, 1996 is approximately $1,980,000. The consolidated net operating
losses will expire at various times between 1998 and 2010.
(4) 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, 1996,
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.
20
<PAGE> 23
A summary of options outstanding at December 31, 1996, is as follows:
<TABLE>
<CAPTION>
Options Option
Outstanding Options Options Price of
and Granted Exercised Outstanding
Option Plan Exercisable in 1996 in 1996 Options
- ----------- ----------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
1985 Option Plan 15,000 0 0 $1.50 to $ 6.50
1990 Option Plan 199,000 0 0 $0.50 to $ 1.06
Director Plan 65,000 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. These shares vested as follows: 50,000 shares
on July 1, 1992, and 250,000 shares on July 1, 1996. The Company recognized
$18,750 and $37,500 of expense related to these compensatory agreements during
1996 and 1995, respectively.
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, 1996.
(5) 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.
21
<PAGE> 24
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, 1997
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.
Signature Title Date
Benjamin A. DeMotto Chairman of the Board, March 26, 1997
- --------------------- Chief Executive Officer,
Benjamin A. DeMotto President and Director
Nicholas Del Sesto Executive Vice President March 26, 1997
- --------------------- and Director
Nicholas Del Sesto
Alvin S. Milder Vice President, Secretary March 26, 1997
- --------------------- and Director
Alvin S. Milder
Robert E. Adams Director March 26, 1997
- ---------------------
Robert E. Adams
- --------------------- Director March 26, 1997
L. E. Chenault
Cathy Nitta Controller March 26, 1997
- ---------------------
Cathy Nitta
22
<PAGE> 25
INDEX TO EXHIBIT
<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 Amendments to Bylaws (10)
4.1 See Articles 3(b), 5 and 6 of Amended Articles of Incorporation
(Exhibit 3.1) (2)
4.2 See Article 2 and Section 8.06 of the Bylaws (Exhibit 3.2) (10)
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)
10.6 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 a loan (11)
10.24 Promissory Note dated February 9, 1996, issued to Benjamin A.
DeMotto, for a loan (11)
10.25 Letter of intent, dated June 7, 1996, for the sale of JALIC
to Unified Life Insurance Company (12)
10.26 Stock Purchase Agreement, signed October 24, 1996, by and
between Unified Life Insurance Company and John Adams Life
Corporation (13)
</TABLE>
<PAGE> 26
<TABLE>
<S> <C>
10.27 * Amendment, signed October 22, 1996, to Supervising General
Agents Commission Agreement (13)
10.28 Revised Life Coinsurance Treaty with Funds Withheld, effective
July 1, 1996, between JALIC and Unified Life Insurance Company
and Amendment No. 1 (14)
16.1 Letter from Price Waterhouse LLP, dated December 21, 1994,
regarding change of independent auditors (8)
21.1 List of Subsidiaries (1)
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 Report on Form 10-Q for the
quarter ending June 30, 1988. **
( 3) Previously filed with Registrant's Report on Form 10-Q for the
quarter ending September 30, 1990. **
( 4) Previously filed with Registrant's Report on Form 10-Q for the
quarter ending June 30, 1991. **
( 5) Previously filed with Registrant's Report on Form 10-K for
the fiscal year ending December 31, 1991. **
( 6) Previously filed with Registrant's Report on Form 10-QSB for the
quarter ending March 31, 1994. **
( 7) Previously filed with Registrant's 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) Previously filed with Registrant's Report on Form 10-KSB for the
fiscal year ending December 31, 1995. **
(12) Previously filed with Registrant's Report on Form 8-K filed June
13, 1996. **
(13) Previously filed with Registrant's Report on Form 8-K filed
November 5, 1996. **
(14) Previously filed with Registrant's Report on Form 10-QSB for the
quarter ending September 30, 1996. **
* The documents filed or incorporated by reference as Exhibits 10.2,
10.14 through 10.19, 10.21 and 10.27 hereto constitute management
contracts or compensatory plans or arrangements.
** Incorporated by reference from the documents described above.
<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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 26,630
<SECURITIES> 0
<RECEIVABLES> 28,810
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 87,688
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,068,692
<CURRENT-LIABILITIES> 414,676
<BONDS> 0
0
0
<COMMON> 6,254,547
<OTHER-SE> (2,914,913)
<TOTAL-LIABILITY-AND-EQUITY> 25,068,692
<SALES> 0
<TOTAL-REVENUES> 1,035,122
<CGS> 0
<TOTAL-COSTS> 1,162,965
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (127,843)
<DISCONTINUED> (2,007,092)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,134,935)
<EPS-PRIMARY> (.74)
<EPS-DILUTED> 0
</TABLE>
