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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB 405
(Mark
One)
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(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF
1934
For the transition period from _____________ to _____________
Commission file number 33-94226-A
THE WMA CORPORATION
(Name of small business issuer in its charter)
Delaware 58-2179041
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11315 Johns Creek Parkway, Duluth, Georgia 30097
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(Address of principal executive offices)
Issuer's telephone number: (770) 248-3311
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
None None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock - Par Value $.001 None
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(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 disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to be 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. Yes X No
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The issuer's revenues for 1997 were $6,799,954.
At February 28, 1998, there were 2,497,800 shares of common stock
outstanding. The aggregate market value of the common stock held by
non-affiliates computed on the basis of the price at which the stock was sold
was $19,978,000. All warrants previously issued in 1995 have been exercised.
There is no established market for the shares of common stock.
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TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C>
ITEM 1 Description of Business 4
ITEM 2 Description of Property 11
ITEM 3 Legal Proceedings 11
ITEM 4 Submission of Matters to a Vote of Security Holders 11
PART II
ITEM 5 Market for Common Equity and Related Stockholder Matters 12
ITEM 6 Management's Discussion and Analysis or Plan of Operation 12
ITEM 7 Financial Statements 18
ITEM 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 34
PART III
ITEM 9 Directors, Executive Officers, Promoters and 34
Control Persons, Compliance With Sections 16(a)
of the Exchange Act
ITEM 10 Executive Compensation 35
ITEM 11 Security Ownership of Certain Beneficial Owners 36
and Management
ITEM 12 Certain Relationships and Related Transactions 37
ITEM 13 Exhibits and Reports on Form 8-K 38
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Overview
The WMA Corporation (the "Company") was formed March 9, 1995 by S.
Hubert Humphrey, Jr. ("Mr. Humphrey") under Delaware law under the name WMA
International Corporation. On March 3, 1998, the Company's stockholders approved
the change of its corporate name to The WMA Corporation. The Company owns 100%
of the outstanding stock of WMA Life Insurance Company Limited, a Bermuda life
insurance corporation formed August 2, 1995 ("WMA Life"). The Company also owns
100% of the outstanding stock of WMA Life Holding, Ltd. ("Holding"), a Bermuda
corporation which has no significant business operations. In December of 1996,
WMA Life became a wholly owned subsidiary of the Company. As used in this
document, the "Company" means The WMA Corporation and, unless the context
requires otherwise, WMA Life.
The Company, through WMA Life, provides reinsurance for certain life
insurance companies on variable universal life insurance ("VUL") and variable
annuity policies sold through World Marketing Alliance, Inc. ("WMA Agency"). WMA
Agency is a Georgia corporation which operates a multi-product independent
insurance agency.
The Company commenced reinsurance operations near the end of the second
quarter of 1996. From commencement through 1997, the Company primarily reinsured
mortality risks on VUL policies. In July of 1997, the Company entered an
agreement to reinsure benefits and risks on variable annuity policies.
The Company currently has reinsurance agreements with Western Reserve
Life Assurance Company of Ohio ("Western Reserve"), Kemper Investors Life
Insurance Company ("Kemper"), and American Skandia Life Assurance Corporation
("American Skandia"), all of which are hereinafter collectively referred to as
the "Ceding Life Companies." The Company's largest reinsurance relationship is
currently with Western Reserve.
For the year ended December 31, 1997, the Company earned $1.52 million
on revenues of $6.80 million. Total assets and stockholders' equity at December
31, 1997 were $25.07 million and $22.08 million, respectively. As of December
31, 1997, the Company reinsured approximately 150,000 policies and had life
reinsurance in force with an aggregate face value of $4.16 billion.
The Company was formed principally to provide an opportunity for WMA
Agency's independent insurance agents ("WMA Sales Associates") to participate
indirectly in certain business produced by WMA Agency. The Company believes
that WMA Sales Associates who have an equity interest in the Company have a
greater incentive to place profitable and persistent business with life insurers
whose policies are reinsured by the Company. As of December 31, 1997, WMA
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Sales Associates and employees of WMA Agency owned in aggregate 1,997,800
shares, or approximately 80%, of the outstanding common stock of the Company and
Mr. Humphrey owned approximately 20%.
Reinsured Products
The Company currently reinsures only VUL and variable annuity policies.
- VUL is a flexible premium adjustable life insurance plan that offers
a form of permanent insurance to the policyholder but also enables the
policyholder, within certain limitations, to change the face amount or
death benefit of the policy and the timing of the premium payments to
meet the policyholder's situation, even after the policy is written.
The death benefits and cash values in VUL policies vary to reflect
investment experience of a separate account (i.e., a separate pool of
assets, typically mutual funds). The policyholder may specify, within
limits and from time to time, where the assets in the separate account
are to be invested. The policy has a guaranteed minimum death benefit
while cash values vary with the investment performance of the separate
account. In a VUL policy, the investment risk is passed on to the
policyholder. From the premium paid by the policyholder, the insurance
company deducts charges for the cost of the mortality risk and
administrative expenses. The balance is placed in the separate account
for investment in accordance with the policyholder's direction. The net
amount of risk on a VUL policy is often defined as the difference
between the specified face amount of insurance and the value of the
assets in the separate account at any given time.
- Variable annuity contracts provide for flexible premium payments and
guarantee that the annuitant will receive a series of periodic payments
commencing at a specified date. The amount of the deferred annuity cash
values will vary in accordance with the investment experience of the
separate account much in the same manner is the separate account in a
VUL policy. Variable annuities may provide a guaranteed minimum death
benefit prior to the commencement of annuity benefit payments.
Reinsurance Types
The Company currently writes two types of reinsurance: monthly
renewable term ("MRT") and modified coinsurance ("ModCo").
Monthly Renewable Term. MRT, also referred to as risk premium
reinsurance, is a plan of reinsurance in which the premium rates are not
directly related to the premium rates on the original plan of insurance. Under
MRT reinsurance, the Ceding Life Company reinsures the mortality risk with the
Company. The amount reinsured in any one month is not based on the face amount
of the policy, but rather on a net amount of risk. A net amount of risk in any
policy month may be defined
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as mutually agreed upon in advance based upon a formula or table of values. The
Ceding Life Company retains responsibility for establishing the policy reserves
as well as for the payment of all policy benefits, commissions and expenses
involved in issuing and maintaining the business.
The Company is also subject to a persistency risk, although not part of
the risk transferred. Persistency risk is associated with the possibility that
the Company may not be able to recover its acquisition expenses during the life
of the policies. MRT reinsurance involves limited investment risk, no cash
surrender risk, no policy loans, and little cash strain compared to other forms
of reinsurance.
Modified Coinsurance. Under ModCo arrangements, reinsurance risk is
ceded to the Company on essentially the same basis as that of the underlying
policies reinsured. The Company receives a proportionate share of gross premiums
from the Ceding Life Companies. The Company then provides expense allowances to
the Ceding Life Companies in recognition of commissions and other expenses
associated with the reinsured policies. These other expenses relate to costs
associated with underwriting, marketing, policy issue and maintenance. The
reserve on the ceded portion of the policy is an obligation of, and held by, the
Ceding Life Company rather than the Company.
ModCo is similar to coinsurance except that reserves and assets related
to the reserves that would otherwise be recorded and held by the Company are
retained by the Ceding Life Company. ModCo reinsurance is used primarily for
products that develop cash values which permits the Ceding Life Company to
retain the associated assets for investment purposes.
Reinsurance Agreements
The following table indicates the names and types of insurance products
currently reinsured by the Company, the Ceding Life Companies that issue the
policies underlying the reinsurance, and the type of reinsurance applicable to
each.
<TABLE>
<CAPTION>
REINSURANCE NAME OF PRODUCT(S) PRODUCT INITIAL POLICY COMMENCEMENT
COMPANY REINSURED TYPE REINSURANCE TYPE ISSUE DATES DATE
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<S> <C> <C> <C> <C> <C>
Western Reserve Freedom Equity Protector VUL Monthly Renewable Term 1/92 to present 6/96
Western Reserve Financial Freedom Builder VUL Monthly Renewable Term 8/97 to present 8/97
American Skandia Imperium Variable ModCo 1/97 to present 1/97
Annuity
Kemper Power VUL VUL Monthly Renewable Term 10/96 to present 10/96
</TABLE>
The Company has recently reached agreements in principle with Western
Reserve on certain VUL and variable annuity products which will enable the
Company to participate in earnings arising principally from mortality and
expense charges, cost of insurance charges, sales charges associated with
surrenders, credited interest rate spreads, administrative charges and asset
based allowances. These new reinsurance agreements provide that Western Reserve
will initially reinsure, on a
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coinsurance and modified coinsurance basis, with the Company 20% of certain of
its VUL policies and 40% of certain of its variable annuity policies sold
through WMA Agency. If the volume of business written through WMA Agency
increases or decreases in subsequent years, these percentages may change.
Marketing -- WMA Agency
The Company benefits from the ongoing support of WMA Agency, an
international sales and marketing organization. WMA Agency markets life
insurance, annuities and other financial services. WMA Agency is authorized to
sell life insurance and annuity products in all 50 states and in other
jurisdictions. WMA Agency has a large network of independent insurance agents.
The Company's chief executive officer, Mr. Humphrey, owns substantially all of
the common stock of World Marketing Alliance, Inc. and the related companies
constituting WMA Agency.
The Company does not use reinsurance intermediaries or engage in any
direct marketing activities. All of the Company's reinsurance business is a
result of the marketing efforts of the WMA Agency which places business with the
Ceding Life Companies. As a consequence, the Company is dependent upon WMA
Agency to market those products which the Company reinsures. WMA Agency is
separate from the Company.
Underwriting and Policy Administration
As an automatic treaty reinsurer, the Company relies upon the
underwriting of the Ceding Life Companies on policies that the Company
reinsures. The Company reviews and monitors the underwriting standards and
procedures of the Ceding Life Companies, including rules used for policy
continuations, changes, reentries, restatements, and conversions.
Policies reinsured by the Company are administered by the Ceding Life
Companies. The Ceding Life Companies provide the Company with all information
necessary for processing the reinsurance.
Future Policy Benefits
The provision for future policy benefits reflected in the Company's
Consolidated Financial Statements are calculated based on generally accepted
accounting principles ("GAAP"). Liabilities for future benefits under the MRT
agreements include provisions for expected future claims, claims in the course
of settlement and claims incurred but not reported. The liability is estimated
using methods that include assumptions, such as estimates of expected investment
yields, mortality, terminations, and expenses, applicable at the time the
reinsurance contracts are executed including provision for the risk of adverse
deviation.
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Liabilities for future policy benefits under the Company's coinsurance
agreements equal policy holder account balances.
Liabilities for future policy benefits are reflected in the Company's
Consolidated Financial Statements and are based on information provided by the
Ceding Life Companies. The reserves established by the Company with respect to
individual risks or classes of business may be greater or less than those
established by ceding companies due to the use of different mortality and other
assumptions. Actual mortality experience in a particular period may be greater
than expected mortality experience and, consequently, may adversely affect the
Company's operating results for such period.
Since the majority of the Company's business is relatively new, no
meaningful experience analysis has been developed. However, results from 1997
indicate claim experience has been favorable.
Retrocession
As of December 31, 1997, the Company had not reinsured ("retroceded")
any of its reinsurance. However, the Company intends to retrocede portions of
the mortality risk in excess of its retention limit. This is likely to occur
coincidental upon the effective date of the new proposed reinsurance agreements
with Western Reserve.
Under the retrocession agreements, the Company intends to retain the
first $100,000 of its liability on any one policy, with the excess over $100,000
being retroceded to one of several retrocessionaires. Under these agreements,
the Company does not expect to exceed its $100,000 retention limit.
Investments
The Company's investments are assets selected with the objective of
maximizing investment returns consistent with appropriate credit,
diversification, tax and regulatory considerations, while providing sufficient
liquidity to enable the Company to meet its obligations as a reinsurance company
on a timely basis.
The Company has engaged an outside investment advisor and manager to
invest the Company's assets in accordance with the Company's investment
guidelines. The performance of, and the fees paid to its investment advisor are
reviewed periodically by the Board of Directors of the Company. The fees paid to
its investment advisor during 1997 were $50,000.
Competition
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The Company is dependent upon WMA Agency for marketing the VUL and
variable annuity products the Company reinsures. WMA Agency faces intense
competition in the sale of these products from the agency force and marketing
organizations of the major life insurance companies as well as from companies
marketing investment related products such as mutual funds.
Regulation
Bermuda--Insurance Regulation
WMA Life is registered as a long-term insurer under the Insurance Act
1978, as Amended, (the "Insurance Act"), which expression includes the related
regulations promulgated under the said Act which, among other things, imposes on
Bermuda insurance companies solvency and liquidity standards and auditing and
reporting requirements and grants to the Minister of Finance (the "Minister")
powers to supervise, investigate and intervene in the affairs of insurance
companies. A long-term insurer is one which issues life, annuity or accident and
disability contracts for periods of not less than five years. Among the other
significant aspects of the Bermuda insurance regulatory framework are:
- An insurer's registration may be canceled by the Minister on
certain grounds specified in the Insurance Act, including
failure of the insurer to comply with its obligations under
the Insurance Act and, if, in the opinion of the Minister, the
insurer has not been carrying on business in accordance with
sound insurance principles.
- Every registered insurer must appoint an independent auditor
who will annually audit and report on the Statutory Financial
Statements and the Statutory Financial Return of the insurer,
both of which, in the case of WMA Life, are required to be
filed annually with the Registrar of Companies (the
"Registrar"), who is the chief administrative officer under
the Insurance Act. WMA Life's auditor is KPMG Peat Marwick
(Hamilton, Bermuda), the Bermuda "tenant" of KPMG Peat
Marwick LLP.
- WMA Life must appoint an actuary approved by the Minister and
file with the Annual Statutory Financial Return an actuarial
certificate in the prescribed form. Mr. Edward F. McKernan, an
officer of the Company and WMA Life, was approved August 7,
1995 by Minister of Finance as WMA Life's Actuary.
- An insurer must prepare Annual Statutory Financial Statements
which include, in statutory form, a balance sheet, income
statement, statement of capital and surplus and detailed notes
thereto.
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- WMA Life is required to file with the Registrar a Statutory
Financial Return no later than four months from the insurer's
financial year end (unless specifically extended), which
includes, among other matters, a report of an approved
independent auditor on the Annual Statutory Financial
Statements of the insurer; solvency certificate; the Annual
Statutory Financial Statements themselves; and the opinion of
the approved Actuary.
- The Insurance Act requires WMA Life to have a minimum level of
statutory capital and surplus of $250,000. In addition, the
Insurance Act provides that the statutory assets of WMA Life
must exceed its statutory liabilities by at least $250,000. At
December 31, 1997, WMA Life's statutory capital and surplus
exceeded the minimum requirements and its long-term business
assets exceeded its long-term business liabilities by more
than the statutory limit.
- An insurer is required to maintain a principal office in
Bermuda and to appoint and maintain a Principal Representative
in Bermuda. WMA Life's Principal Representative and principal
office is CFM Insurance Mangers, Ltd., 3rd Floor, 44 Church
Street, Hamilton HM 12, Bermuda. Among the Principal
Representative's duties is to report to the Minister if the
Principal Representative believes it is likely that the
insurer for whom he acts may become insolvent or that a
reportable event has occurred.
- The payment of dividends by WMA to the Company is restricted
by Bermuda law. WMA Life may not declare or pay a dividend or
make a distribution out of contributed surplus if, among other
things, there are reasonable grounds for believing that (a)
WMA Life is, or would after the payment be, unable to pay its
liabilities as they become due; or (b) the realizable value of
WMA Life's assets would thereby be less than the aggregate of
its liabilities and its issued share capital and share premium
accounts.
United States
WMA Life is not admitted as authorized to do business in any state of
the United States. The insurance laws of each state of the United States do not
directly regulate the sale of reinsurance within their jurisdictions by alien
insurers, such as WMA Life. Nevertheless, the sale of reinsurance by alien
reinsurers, such as WMA Life, to insurance companies domiciled or licensed in
United States jurisdictions is indirectly regulated by state "credit for
reinsurance" laws that operate to deny statutory financial statement credit to
ceding insurers unless the alien reinsurer posts acceptable security for ceded
liabilities and agrees to certain contract provisions. The insurance laws of
United States jurisdictions generally exempt the business of reinsurance from
"doing business" laws. The Company does not believe that WMA Life is subject to
the insurance laws of any state in the United States.
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Employees
During 1997, the Company had no employees. The Company's day-to-day
operations were conducted pursuant to an agreement with WMA Management Services,
Inc., a Georgia corporation ("WMA Management") controlled by Mr. Humphrey. WMA
Management performed all of the Company's managerial and administrative
functions pursuant to the terms of this agreement for which the Company paid
$120,000 to WMA Management during 1997.
ITEM 2. DESCRIPTION OF PROPERTY.
As of January 21, 1998, the Company sublet approximately 1,250 square
feet of office space in Duluth, Georgia from WMA Agency through January 20,
2008, at a monthly rental rate of $1.245 per square foot. For the first five
years of the lease term, the rate is equivalent to the rate being paid by WMA
Agency to its lessor, of which the rate will increase during the last five years
of the term. The annual rental for this space during the first five years is
$18,675. The Company does not own or lease any other properties. Prior to that
date, the Company utilized office facilities in space provided to it by WMA
Agency.
ITEM 3. LEGAL PROCEEDINGS.
At December 31, 1997, the Company was not a party to any litigation or
arbitration, and is not aware of any litigation or arbitration, that is likely
to have a material adverse effect on the Company's consolidated financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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On March 3, 1998, the Company's stockholders at a special meeting
approved a recommendation of the Company's Board of Directors to amend the
Company's Certificate of Incorporation to change the Company's name to "The WMA
Corporation" from WMA International Corporation. The vote was 1,777,079 shares
voting FOR the name change, 3,057 shares AGAINST and 68,829 share votes were
withheld.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
No public trading market existed for the Company's common stock during
1997. The Company recently applied to the NASDAQ National Market to have its
stock quoted under the trading symbol WMAC. The WMAC symbol has been reserved
for the Company.
In late December, 1997, the Company issued 88,258 shares of its common
stock to several agents of WMA Agency who exercised warrants that they had
purchased from the Company pursuant to registration statement (Commission File
#3 - 94226-A), which became effective December 31, 1995. The Company received
$882,580 in cash upon the exercise of these warrants, which funds were used for
general working capital purposes. The shares issued by the Company upon exercise
of these warrants were also included in the above registration statement. As of
December 31, 1997, all warrants were exercised.
At December 31, 1997, the Company had 2,497,800 shares of common stock
outstanding and approximately 803 stockholders of record.
The Company did not pay or declare a dividend in 1997.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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The following analysis of the consolidated results of operations and financial
condition of The WMA Corporation should be read in conjunction with the
Company's Consolidated Financial Statements and the notes thereto, included
elsewhere herein.
Overview
The Company is a holding company, owning all of the outstanding capital
stock of WMA Life, a Bermuda life insurance corporation. WMA Life commenced
reinsurance operations at the end of the second quarter of 1996. WMA Life is
presently engaged in providing reinsurance to certain insurance companies with
respect to VUL and variable annuity policies sold through WMA Agency.
Under a reinsurance agreement, the economic consequences of certain
insurance risks are transferred from the ceding company to the reinsurer.
Depending upon the type of reinsurance agreement, these risks may include
mortality, persistency, expense, and investment. Key considerations in
evaluating the risks include industry experience, the ceding company's pricing
and assumptions, the type of product, the ceding company's underwriting
practices and procedures, the type of distribution system, the ceding company's
recent experience, and the market for the product.
The Ceding Life Companies retain responsibility for the payment of all
claims, surrender values, commissions and expenses involved in issuing and
maintaining the policies. In addition, the Ceding Life Companies administer the
reinsurance contracts and, on a monthly basis, provide WMA Life with information
regarding premiums, reserves, benefits, claims and settlement expenses for
policies reinsured. Financial activity between the Ceding Life Companies and WMA
Life is settled on either a monthly or quarterly basis.
MRT Reinsurance
During 1997, WMA Life's reinsurance indemnity agreements included two
relating to VUL policies. The reinsurance of the VUL policies includes business
previously and currently being sold through WMA Agency and issued by Western
Reserve and Kemper. The Western Reserve and Kemper reinsurance agreements
provide for the reinsurance of a portion of all individual VUL policies sold by
WMA Agency on a Monthly Renewable Term basis ("MRT"), a variation of Yearly
Renewable Term ("YRT") reinsurance. Under the MRT reinsurance agreements with
Western Reserve and Kemper, WMA Life assumes a portion of the mortality risk
related to the VUL policies written by the ceding companies. At December 31,
1997, WMA Life's reinsurance inforce on life insurance policies constituted
148,940 policies with an aggregate reinsured amount of $4.16 billion.
Modified Coinsurance Reinsurance
WMA Life executed a reinsurance agreement on a modified coinsurance
basis with American Skandia during July, 1997, providing for the reinsurance of
a portion of all Imperium variable annuity policies sold by WMA Agency
commencing as of January 1, 1997. The Imperium policies are products exclusively
distributed and sold by WMA Agency. WMA Life assumes a
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proportionate share of the insurance risks and expenses and receives a
proportionate share of the premiums or revenues from the Imperium policies. The
insurance risks include mortality, lapses, cash surrenders and investment risks.
Modified coinsurance requires that the reserves and assets related to the
reserves that would otherwise be recorded and held by the Company are retained
by American Skandia. As of December 31, 1997, WMA Life had reinsurance inforce
with respect to variable annuities for 1,897 policies with reinsured annuity
contract benefits of $30.89 million.
Accounting
WMA Life recognizes premiums as earned on MRT reinsurance for the
mortality risk reinsured. WMA Life reflects premiums and deposits relating to
its proportionate share of the coinsured policies in Deposits and other
considerations on the Consolidated Financial Statements. Increases in
policyholder account balances on reinsured policies deposited with the ceding
company, plus incurred policy benefits and claims, less investment gains and
losses of the separate accounts are reflected in the Modified coinsurance
reserve adjustment on the Consolidated Financial Statements.
The netting of Deposits and other considerations, with respect to the
modified coinsurance, and the Modified coinsurance adjustment equals revenues of
$195,000. This netting equals the policy mortality and expense charges, policy
administration charges and deferred sales charges that have been assessed
against the reinsured policy account balances.
WMA Life also recognizes costs that are directly associated with the
acquisition of the reinsured policies. These expenses include actuarial, legal
and accounting fees and salaries and expenses incurred directly by WMA Life, and
reinsurance allowances paid to the ceding companies in accordance with the
reinsurance agreements. These expenses are deferred to the extent that such
costs are deemed to be recoverable from future revenues and are recorded as
deferred acquisition costs on the balance sheet. Deferred acquisition costs are
amortized over the lives of the underlying policies (with regard to the terms of
the reinsurance agreement), in proportion to the ratio of revenues collected
during the then current period to total anticipated revenues. Deferred
acquisition costs increased $3.77 million during 1997 to $4.50 million at
December 31, 1997.
Life insurance claims settled and the increase in the liability for
future policy benefits related to reinsured VUL policies are recorded as
benefits, claims and settlement expenses in the
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Consolidated Financial Statements. The liability for future policy benefits was
$1.29 million at December 31, 1997 in comparison to $614,000 at December 31,
1996.
Results of Operations
Since the Company did not commence reinsurance operations until the end of the
second quarter of 1996, no meaningful comparisons can be made with respect to
results of operations in years prior to 1996. Additionally, results of
operations for 1997 include 12 months of operation, while results of operations
for 1996 include only six and one-half months of operations.
Twelve Month Periods Ending December 31, 1997 Compared to Twelve Month Period
Ending December 31, 1996
Revenues. The Company's revenues increased by $4.17 million, or 159%,
to $6.80 million in 1997 from $2.63 million in 1996. The increase was
attributable primarily to the growth in premiums associated with the Western
Reserve MRT agreement. Additional revenue increases of $195,000 and $300,000
were attributable to the modified coinsurance agreement WMA Life entered into
with American Skandia during 1997, and to a one-time payment to the Company from
Western Reserve to compensate the Company for delays in a product introduction
that is reinsured under the MRT agreement. An increase in investment income of
$461,000 also contributed to the increase in revenue.
Premiums. Premiums increased by $3.21 million, or 160%, to $5.22
million in 1997 from $2.01 million in 1996. The increase was attributable
primarily to the growth in premiums associated with a MRT reinsurance agreement
WMA Life entered into with Western Reserve during the second quarter of 1996,
and to a much lesser extent to a MRT agreement executed during the fourth
quarter of 1996 with Kemper. The increase in Western Reserve premiums was due to
a full year of operations in 1997, and an increase in the number and reinsured
amount of VUL policies sold by WMA Agency for Western Reserve.
Net Investment Income. Net investment income increased by $461,000, or
74%, to $1.09 million in 1997 from $627,000 in 1996. Investment income is earned
from the investment in securities (fixed income and equity) and cash
equivalents. Investment income in 1997 from securities was $1.04 million and
$117,000 from cash equivalents, in comparison to $277,000 and $385,000 in 1996,
respectively. The increase was the result of the majority of the Company's
assets being invested in fixed income securities during 1997, as compared to
1996 when the Company's assets were invested in cash or cash equivalent
securities for ten months of the year. Concurrently, in November of 1996, the
Company engaged an outside investment advisor and manager, which then proceeded
to invest the assets, in accordance with the Company's investment guidelines
into mostly fixed income and some equity securities. Investment expenses of
$65,000 and $35,000 for 1997 and 1996, respectively related to investment
advisor fees and custodial fees which were netted with gross investment income.
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Benefits, Claims and Settlement Expenses. Benefits, claims and
settlement expenses increased by $1.43 million, or 146%, to $2.41 million in
1997 from $977,000 in 1996. This increase primarily resulted from an increase in
volume of in force business and a full year of reinsurance operations in 1997
which lengthened the exposure period for reinsured policies from six and
one-half months in 1996. The amount of business in force at December 31, 1997,
was $4.16 billion as compared to $2.67 billion at December 31, 1996, which
represented a $1.49 billion, or 56% increase. As of December 31, 1996, WMA
Life's death benefit exposure on business reinsured through the Western Reserve
MRT agreement commenced with each policy's monthiversary occurring during the
month of June, for all policies in force on June 30, 1996.
Reinsurance Premium Allowances, Net. Net reinsurance premium allowances
increased by $878,000, or 152%, to $1.45 million in 1997 from $576,000 in 1996.
Gross reinsurance premium allowances represent a portion of reinsurance premiums
paid or allowed by WMA Life to the Ceding Life Companies for each policy
reinsured. A certain portion of the gross reinsurance allowances related to the
production of new business were primarily related to the Company's share of
commissions, certain development costs and other expenses related to the
production of new business. These amounts have been deferred to the extent that
such costs are deemed recoverable from future policy revenue in accordance with
GAAP. The balance of those amounts not deferred are reflected as net reinsurance
premium allowances and are often a level percentage of individual policy
revenues (e.g., renewal reinsurance allowances). Similar to the increase in
benefits, claims and settlement expenses, the increase in net reinsurance
premium allowances was due to an increase in the length of the exposure period,
and an increase in the volume of business in force.
Professional Fees, Management Fees and Other Expenses. Professional
fees, management fees and other expenses increased by $63,000, or 15%, to
$480,000 in 1997 from $417,000 in 1996. The increase in expenses was primarily
associated with an increase in the amount of reinsurance business as well as a
full year of operations in 1997 as compared to six and one-half months in 1996.
Expenses relating to the administration of the Company also contributed to the
increase.
Amortization of Deferred Acquisition Costs. Amortization of deferred
acquisition costs increased by $115,000 to $121,000 in 1997 from $6,000 in 1996.
The increase in deferred acquisition costs was attributable primarily to: (i) a
full year of operations in 1997 as compared to only six and one-half months
reported for 1996, and (ii) an increase in business assumed.
Income Taxes. Income taxes increased by $703,000 to $816,000 in 1997
from $113,000 in 1996. The Company's effective tax rate was 34.9% in 1997 and
17.2% in 1996. The increase in effective tax rate is due to the 1996 reversal of
a valuation allowance for deferred tax assets.
16
<PAGE> 17
Net Income. As a result of the foregoing, net income for the year ended
December 31, 1997, was $1.52 million compared to $545,000 for the year ended
December 31, 1996, which was an increase of $975,000.
Liquidity and Capital Resources
Historically, the principal sources of the Company's cash flow have
been premiums, investment income, maturing investments and proceeds from sales
of invested assets. In addition to the need for cash flow to meet operating
expenses, the liquidity requirements of the Company relate primarily to the
payment of gross reinsurance allowances, expenses and claims.
The Company's cash requirements will consist of salary and benefits;
management service fees; investment management and custodial account fees;
accounting and consulting services fees; expenses related to regulatory issues
and compliance with corporate and tax matters; and other incidental
administrative expenses. Prior to 1998 the Company incurred no expense for
salary and benefits because it had no employees.
The Company has no assets other than the stock of its subsidiaries and
investment assets. The Company will rely on income from its investment assets
and dividends from WMA Life to meet holding company cash requirements.
The Company's primary source of liquidity was $1.47 million in cash and
cash equivalents at December 31, 1997, a decrease of $511,000 from the prior
comparable period. The decrease in cash and cash equivalents was due primarily
to placement of assets into fixed income and equity securities in accordance
with the Company's investment guidelines. In anticipation of the American
Skandia agreement, WMA Life has repositioned its investment portfolio to meet
the liquidity requirements of this agreement. The effective duration of the
Company's fixed income portfolio is just over four years, with over 88% of the
fixed income securities having a maturity of less than 10 years. The Company's
fixed income portfolio represents over 97% of the total invested assets, and has
an average quality of rating Aa2 by Moody's.
The Company believes that the sources of cash from the 1995 offering
will be sufficient to meet the Company's cash needs for the next twelve months
with respect to the administration of WMA Life's current MRT agreements with
Western Reserve and Kemper and modified coinsurance agreement with American
Skandia.
As a result of the new proposed reinsurance agreements with Western
Reserve, the Company will require substantially greater amounts of cash to make
required payments to the Ceding Life Companies than it has been required to make
under its existing agreements. During the first year in which a policy is
reinsured on a coinsurance basis, the Company is required to reimburse the
ceding company for acquisition costs, including first year commissions and
issuance expenses. Payments made by the Company to the ceding company under
these arrangements are expected to
17
<PAGE> 18
materially exceed the amount of premiums received by the Company during the
first year a policy is in effect.
The Company intends to offer shares of common stock to the public
sometime in 1998 to provide sufficient capital to fund payments of reinsurance
allowances to Western Reserve in relation to the proposed agreements. If an
offering is not consummated, or if the Company's cash requirements are greater
than anticipated, the Company may have to resort to other methods of raising the
necessary capital to finance its growth, such as borrowing from financial
institutions or the sale of additional securities in other private or public
offerings. There can be no assurance that such alternatives would be available
to the Company at an acceptable cost, if at all.
The Company's reinsurance agreements provide security to the Ceding
Life Companies through a Letter of Credit ("LOC") for the benefit of the Ceding
Life Companies. WMA Life has previously secured a LOC in favor of Western
Reserve and, during the fourth quarter of 1997, increased the LOC from
$1,000,000 to $2,000,000. WMA Life also has previously secured a LOC of $30,000
in favor of Kemper. The LOCs were issued by IBJ Schroder, the Company's
custodian and collateralized by the Company's assets held with the custodian. If
determined to be necessary, WMA Life will develop facilities for future LOCs and
trust arrangements in support of additional reinsurance agreements.
As a result of the 1995 offering, the Company sold 2,000,000 shares of
Common Stock and 500,000 warrants for gross proceeds of $20.5 million (excluding
deferred organization costs of $517,000). The Company incurred no capital
expenditures during 1997.
The Company has reviewed its internal business systems and believes its
systems, primarily its computer systems, will process date information
accurately and without interruption when required to process dates in the year
1999 and beyond. The Company has discussed the year 2000 issue with the Ceding
Life Companies and the steps they have taken to address the situation. The
Company believes its operations will not be affected. The Company has not been
required to expend significant resources to address the year 2000 issue and does
not anticipate any significant expenditures.
The Company is dependent on the data processing systems of the Ceding
Life Companies and for the year 2000 and beyond. There can be no assurance that
these systems will be able to properly process information relating to the year
2000 and beyond. The failure of these systems to be year 2000 Complaint could
have material adverse effect upon the Company.
ITEM 7. FINANCIAL STATEMENTS.
The December 31, 1997 Financial Statements follow on the next page.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The WMA Corporation:
We have audited the accompanying consolidated balance sheets of The WMA
Corporation (formerly known as WMA International Corporation) as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The WMA Corporation
(formerly known as WMA International Corporation) as of December 31, 1997 and
1996, and the results of their operations and their cash flows, for the years
then ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 6, 1998
<PAGE> 20
THE WMA CORPORATION
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Assets
------
Fixed maturity securities - available for sale (amortized
cost of $17,686,390 and $15,860,123 for 1997 and
1996, respectively) $17,782,055 15,678,474
Equity securities - available for sale (cost of $487,733
for 1997 and 1996) 630,929 479,016
----------- -----------
Total investments 18,412,984 16,157,490
Cash and cash equivalents 1,469,663 1,980,201
Investment income due and accrued 257,629 181,265
Reinsurance receivables 183,524 30,396
Deferred acquisition costs 4,503,338 732,329
Deferred organization costs (net of accumulated
amortization of $62,128 and $25,692 at December 31,
1997 and 1996, respectively) 124,741 161,177
Other assets 114,026 26,861
----------- -----------
Total assets $25,065,905 19,269,719
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Future policy benefits $ 1,293,917 614,477
Reinsurance balances payable 434,443 --
Accrued expenses 173,735 141,983
Accounts payable 107,024 96,695
Due to stockholders -- 15,418
Deferred tax liability 980,411 48,083
----------- -----------
Total liabilities 2,989,530 916,656
----------- -----------
Stockholders' equity:
Common stock, par value $.001, 10,000,000 authorized; 2,500,000 and
2,305,550 shares issued in 1997 and 1996,
respectively 2,500 2,306
Additional paid-in capital 20,228,973 18,286,667
Unrealized gain (loss) on securities available for sale,
net of taxes 157,670 (125,641)
Retained earnings 1,709,232 189,731
Treasury stock, at cost (2,200 shares) (22,000) --
----------- -----------
Total stockholders' equity 22,076,375 18,353,063
----------- -----------
Commitments (note 9)
----------- -----------
Total liabilities and stockholders' equity $25,065,905 19,269,719
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
THE WMA CORPORATION
Consolidated Statements of Operations
Years ended December 31, 1997 and 1996 and for the
Period March 9, 1995 Through December 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ --------- --------
<S> <C> <C> <C>
Revenues:
Premiums $ 5,217,365 2,007,391 --
Deposits and other considerations 30,098,974 -- --
Modified coinsurance reserve adjustment (29,903,850) -- --
Net investment income 1,087,465 626,635 6,661
Other income 300,000 -- --
------------ --------- --------
Total revenue 6,799,954 2,634,026 6,661
------------ --------- --------
Benefits and expenses:
Benefits, claims, and settlement expenses 2,408,842 976,635 --
Reinsurance premium allowances, net 1,454,204 576,297 --
Amortization of deferred acquisition costs 121,283 6,414 --
Professional, management, and other expenses 480,381 417,520 361,282
------------ --------- --------
Total benefits and expenses 4,464,710 1,976,866 361,282
------------ --------- --------
Net income (loss) before income taxes 2,335,244 657,160 (354,621)
Income tax expense 815,743 112,808 --
------------ --------- --------
Net income (loss) after income taxes $ 1,519,501 544,352 (354,621)
============ ========= ========
Basic and diluted income per share $ 0.63 0.44 (.87)
============ ========= ========
Weighted-average common shares outstanding 2,394,769 1,246,500 408,219
============ ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
THE WMA CORPORATION
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997 and 1996 and for the
Period March 9, 1995 Through December 31, 1995
<TABLE>
<CAPTION>
Additional Unrealized Accumulated Total
Number Common paid-in loss in equity Treasury stockholders'
of shares stock capital investments (deficit) stock equity (deficit)
--------- --------- ---------- ----------- ----------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 9, 1995 -- $ -- -- -- -- -- --
Common stock issued 500,000 500 249,500 -- -- -- 250,000
Net loss -- -- -- -- (354,621) -- (354,621)
--------- --------- ---------- -------- ---------- -------- -----------
Balance, December 31, 1995 500,000 500 249,500 -- (354,621) -- (104,621)
Common stock issued 1,805,550 1,806 18,553,694 -- -- -- 18,555,500
Net income -- -- -- -- 544,352 -- 544,352
Unrealized loss in investments -- -- -- (125,641) -- -- (125,641)
Deferred offering costs -- (516,527) -- -- -- (516,527)
--------- --------- ---------- -------- ---------- -------- -----------
Balance, December 31, 1996 2,305,550 2,306 18,286,667 (125,641) 189,731 -- 18,353,063
Common stock issued 194,450 194 1,944,306 -- -- -- 1,944,500
Net income -- -- -- -- 1,519,501 -- 1,519,501
Unrealized gain (loss) in
investments -- -- -- 283,311 -- -- 283,311
Purchase of treasury stock
(2,200 shares) and warrants
(2,000 warrants) -- (2,000) -- -- (22,000) (24,000)
--------- --------- ---------- -------- ---------- -------- -----------
Balance, December 31, 1997 2,500,000 2,500 20,228,973 157,670 1,709,232 (22,000) 22,076,375
========= ========= ========== ======== ========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
THE WMA CORPORATION
Consolidated Statements of Cash Flows
Years ended December 31, 1997 and 1996 and for the
Period March 9, 1995 Through December 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,519,501 544,352 (354,621)
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 157,719 32,106 --
Deferred tax expense 815,743 112,808 --
Change in:
Investment income due and accrued (76,364) (181,265) --
Reinsurance receivables (153,128) (30,396) --
Deferred acquisition costs (3,892,292) (738,743) --
Other assets (87,165) (26,861) --
Future policy benefits 679,440 614,477 --
Reinsurance balances payable 434,443 -- --
Accrued expenses 31,752 141,983 --
Accrued interest -- (12,995) 12,995
Accounts payable 10,329 (28,181) 65,095
----------- ----------- --------
Net cash (used in) provided by
operating activities (560,022) 427,285 (276,531)
----------- ----------- --------
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities 5,363,904 4,783,000 --
Purchase of available-for-sale securities (7,219,502) (21,130,856) --
----------- ----------- --------
Net cash used in investing activities (1,855,598) (16,347,856) --
----------- ----------- --------
Cash flows from financing activities:
Issuance of common stock 1,944,500 18,555,500 250,000
Purchase of treasury stock and warrants (24,000) -- --
Proceeds from borrowings under note payable -- -- 750,000
Repayments of borrowings under note payable -- (748,679) (1,321)
Offering costs -- (217,989) (298,538)
Organization costs -- (10,512) (116,576)
(Decrease) increase in due to stockholders (15,418) 15,418 --
----------- ----------- --------
Net cash provided by financing activities 1,905,082 17,593,738 583,565
----------- ----------- --------
Net (decrease) increase in cash and
cash equivalents (510,538) 1,673,167 307,034
Cash and cash equivalents at beginning of year 1,980,201 307,034 --
----------- ----------- --------
Cash and cash equivalents at end of year $ 1,469,663 1,980,201 307,034
=========== =========== ========
Supplemental disclosure of cash flow information -
interest paid $ 10,971 56,032 16,406
=========== =========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
THE WMA CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(1) Organization
The WMA Corporation (formerly known as WMA International Corporation) is
an insurance holding company originally formed March 9, 1995.
The consolidated financial statements include the assets, liabilities,
and results of operations of The WMA Corporation ("WMA Corporation") and
its wholly owned subsidiaries, WMA Life Holding, Ltd. ("Holding"), a
Bermuda domiciled insurance holding company, and WMA Life Insurance
Company Limited ("WMA Life"), a Bermuda domiciled life reinsurance
company (collectively, the "Company").
The Company provides reinsurance for certain national life insurance
companies on life insurance and annuity policies sold by World Marketing
Alliance, Inc. ("WMA"), a sales and marketing organization. Such policies
are sold throughout the United States. A major shareholder of WMA
Corporation owns a controlling interest in WMA and WMA Management
Services, Inc. ("WMA Management"), which provide operating assistance to
the Company for a fee. WMA Management is primarily responsible for the
maintenance of the financial records of the Company.
Reinsurance is an arrangement under which an insurance company, the
"reinsurer," agrees to indemnify another insurance company, the ceding
company, for all or a portion of the insurance risks underwritten by the
ceding company. The reinsurer, in turn, assumes a portion of the
underwritten risk in exchange for a portion of the premium collected. The
Company currently assumes portions of mortality and other risks relating
to life insurance and annuity policies in order to share in the net
profits generated through the sale of such policies by WMA.
(2) Summary of Significant Accounting Policies
Consolidation and Basis of Presentation. The consolidated financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles prescribed for stock life insurance
companies. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of revenues and expenses during the
reporting period. Accounts that the Company deems to be sensitive to
changes in estimates include deferred policy acquisition costs and future
policy benefits. In all instances, actual results could differ from
estimates.
The accompanying financial statements consolidate the accounts of WMA
Corporation and its subsidiaries. All significant intercompany balances
and transactions have been eliminated.
(Continued)
24
<PAGE> 25
THE WMA CORPORATION
Notes to Consolidated Financial Statements
Investments. The Company classifies all fixed maturity securities and
equity securities as "available for sale." Such securities are reported
at fair value. Fixed maturities available for sale are so classified
based upon the possibility that such securities could be sold prior to
maturity if that action enables the Company to execute its investment
philosophy and appropriately match investment results to operating and
liquidity needs.
Although no impairments in value have occurred which would require
adjustment to the carrying value of securities, any such impairment
identified in the future would result in a reduction of the carrying
value and reflection of a corresponding realized capital loss in the
consolidated statements of operations. The Company's policy is to
recognize such an impairment when the projected cash flows of these
securities have been reduced on other than a temporary basis so that the
realizable value is reduced to an amount less than the carrying value.
Investment income is recognized as it accrues or is legally due. Income
on mortgage-backed securities includes amortization and accretion of
purchase premiums and discounts using a method that approximates a level
yield, taking into consideration assumed prepayment patterns. The
restrospective adjustment method is used to adjust for prepayment
activity. Realized gains and losses on sales of investments are included
in net income, as are write-downs of securities where declines in value
are deemed to be other than temporary in nature. The cost of investment
securities sold is determined based upon the specific identification
method. Unrealized gains and losses on marketable equity securities and
fixed maturity securities available for sale, less applicable deferred
income taxes, are reported as a separate component of stockholders'
equity.
The Company does not participate in investments defined as derivatives
under Statement of Financial Accounting Standards No. 119, Disclosure
about Derivative Financial Instruments and Fair Value of Financial
Instruments.
Fair Value Disclosures. The carrying values of cash and cash equivalents,
reinsurance receivables and payables, accrued expenses and accounts
payable approximate their fair values due to the short-term nature of
these accounts. The carrying value of future policy benefits approximates
its fair value as credited interest approximates current market rates.
See note 3 for fair value information covering the Company's investment
portfolio.
Additional Information Regarding Statements of Cash Flows. Cash and cash
equivalents include cash on hand and on deposit purchased with an
original maturity of three months or less.
Deferred Policy Acquisition Costs. Costs of acquiring new business, which
vary with and are primarily related to the production of new business,
have been deferred to the extent that such costs are deemed recoverable
from future premiums. Such costs include commissions, expense allowances
and certain other underwriting costs.
(Continued)
25
<PAGE> 26
THE WMA CORPORATION
Notes to Consolidated Financial Statements
Deferred acquisition costs are amortized over the lives of the underlying
policies (with regard to the terms of the reinsurance agreement), in
proportion to the ratio of revenues collected during the then current
period to total anticipated revenues. On those policies under a monthly
renewable term reinsurance agreement, revenues represent premiums
recognized for the mortality risk reinsured. Such total anticipated
premium revenues are estimated using the same assumptions used for
computing liabilities for future policy benefits. For policies under a
modified coinsurance agreement, revenues represent gross profits
associated with mortality charges, investment margins, surrender charges,
and expense loads.
Reinsurance Premium Allowances. Allowances represent a percentage of each
reinsurance premium which is paid or allowed by WMA Life to the ceding
company for each policy reinsured. Allowances are shown net of amounts
deferred as policy acquisition costs.
Future Policy Benefits. Liabilities for future benefits on life policies
are established in an amount adequate to meet the estimated future
obligations on policies in force. Liabilities for future policy benefits
under long-term life insurance policies have been computed based upon
expected investment yields, mortality and withdrawal rates, and other
assumptions including estimates for incurred but not reported losses.
These assumptions include a margin for adverse deviation and vary with
the characteristics of the plan of insurance, year of issue, age of
insured, and other appropriate factors. Interest rates range from 6.0% to
7.0%. The mortality and withdrawal assumptions are based on industry
experience and standards. Policy and contract reserves are included in
future policy benefits on the consolidated balance sheet.
Liabilities for future policy benefits under the modified coinsurance
agreement equal policy holder account balances.
Income Taxes. The Company uses the asset and liability method to record
deferred income taxes. Accordingly, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases, using enacted tax
rates expected to apply when such temporary differences are expected to
reverse.
Recognition of Revenues and Related Expenses. Reinsurance premiums
received under the monthly renewable term agreements are recognized as
revenue over the premium paying periods of the reinsured policies.
Benefits and expenses are associated with earned premiums so that profits
are recognized over the life of the related contract. This association is
accomplished through the provision for future policy benefits and the
amortization of deferred policy acquisition costs.
Deposits and Other Considerations. Deposits and other considerations
represent gross premiums and other considerations received on policies
subject to modified coinsurance agreements between the Company and the
national life insurance companies (the ceding companies) from which the
Company assumes reinsurance. Under such agreements, future policy benefit
reserves and related assets supporting such reserves are maintained by
the ceding companies. Other consideration received includes surrender
charges, maintenance and expense charges, and other administrative
charges.
(Continued)
26
<PAGE> 27
THE WMA CORPORATION
Notes to Consolidated Financial Statements
Modified Coinsurance Reserve Adjustment. The modified coinsurance reserve
adjustment recorded by the Company represents the increase in policy
benefit reserves allocated to the ceding company under modified
coinsurance agreements. The adjustment consists of the increase or
decrease in benefit reserves held by the ceding company, plus benefits
and less interest earned on benefit reserve amounts. The modified
coinsurance reserve adjustment is shown as an offset to deposits and
other considerations in the accompanying statement of operations.
Income Per Share. Basic income per share is computed based on the
weighted-average number of common shares outstanding during the period,
in accordance with Statement of Financial Accounting Standards (SFAS) No.
128, Earnings Per Share. The Company has no dilutive potential common
shares outstanding, and thus basic and diluted income per share are the
same.
Deferred Offering Costs. Costs relating to the common stock offering were
deferred at December 31, 1995 and were offset against the proceeds of the
offering during 1996.
Deferred Organization Costs. Costs of organizing the Company have been
capitalized and are being amortized over five years on the straight-line
method.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income. This statement establishes
standards for reporting and displaying comprehensive income and its
components in a full set of general purpose financial statements. SFAS
No. 130 requires all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in
a financial statement that is displayed in equal prominence with the
other financial statements. The term "comprehensive income" is used in
the statement to describe the total of all components of comprehensive
income including net income. "Other comprehensive income" refers to
revenues, expenses, gains, and losses that are included in comprehensive
income but excluded from earnings under current accounting standards.
Currently, "other comprehensive income" for the Company consists of items
recorded directly in equity under SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. SFAS No. 130 is effective for
both interim and annual periods beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 establishes new
standards for the disclosures made by public business enterprises to
report information about operating segments in annual financial
statements and requires those enterprises to report selected information
about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS No.
131 is effective for financial statements for years beginning after
December 15, 1997. The Company does not have any separate segments that
are considered material.
(Continued)
27
<PAGE> 28
THE WMA CORPORATION
Notes to Consolidated Financial Statements
Reclassification. The Company has reclassified the presentation of
certain 1996 information to conform with the 1997 presentation.
(3) Investments
Major categories of net investment income consist of the following:
<TABLE>
<CAPTION>
Periods ended December 31,
----------------------------------
1997 1996 1995
----------- -------- -----
<S> <C> <C> <C>
Fixed maturity securities $ 1,035,453 276,693 --
Short-term investments 117,035 384,997 6,661
----------- -------- -----
1,152,488 661,690 6,661
Investment expense (65,023) (35,055) --
----------- -------- -----
Net investment income $ 1,087,465 626,635 6,661
=========== ======== =====
</TABLE>
The amortized cost, unrealized gains and losses, and estimated fair
values of investments in fixed maturity securities at December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
1997 cost gains losses value
---- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available for sale:
Fixed maturities:
U.S. Government and agencies $ 5,846,323 50,622 -- 5,896,945
Commercial and industrial 8,813,657 103,456 59,698 8,857,415
Public utilities 797,949 11,300 6,554 802,695
Mortgage-backed securities 2,228,461 26,960 30,421 2,225,000
----------- ------- ---------- ----------
17,686,390 192,338 96,673 17,782,055
Equity securities 487,733 143,196 -- 630,929
----------- ------- ---------- ----------
$18,174,123 335,534 96,673 18,412,984
=========== ======= ========== ==========
1996
----
Available for sale:
Fixed maturities:
U.S. Government and agencies $ 6,558,639 221 30,382 6,528,478
Commercial and industrial 7,998,112 -- 127,322 7,870,790
Public utilities 797,718 -- 17,044 780,674
Mortgage-backed securities 505,654 -- 7,122 498,532
----------- ------- ---------- ----------
15,860,123 221 181,870 15,678,474
Equity securities 487,733 -- 8,717 479,016
----------- ------- ---------- ----------
$16,347,856 221 190,587 16,157,490
=========== ======= ========== ==========
</TABLE>
There were no investments in any entity in excess of 10% of stockholders'
equity at December 31, 1997, other than investments issued or guaranteed
by the U.S. Government. Fixed maturity securities are valued based upon
quoted market prices.
(Continued)
28
<PAGE> 29
THE WMA CORPORATION
Notes to Consolidated Financial Statements
At December 31, 1997, the contracted maturities of investments in fixed
maturity securities were as follows:
<TABLE>
<CAPTION>
Amortized Fair
cost value
----------- ----------
<S> <C> <C>
Available for sale:
Due after one year through five years $ 9,283,473 9,334,185
Due after five years through ten years 5,849,646 5,929,302
Due after ten years 324,810 293,568
Mortgage-backed securities 2,228,461 2,225,000
----------- ----------
$17,686,390 17,782,055
=========== ==========
</TABLE>
Expected maturities will differ from contractual maturities because some
issuers have the right to call or prepay obligations with or without call
or prepayment penalties.
Changes in net unrealized gains and losses were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1996
--------- --------
<S> <C> <C>
Fixed maturity securities available for sale $ 277,314 (181,649)
Equity securities 151,913 (8,717)
--------- --------
$ 429,227 (190,366)
========= ========
</TABLE>
(4) Reinsurance
Retrocession reinsurance contracts do not relieve the Company from its
obligations to ceding companies. Failure of retrocessionaires to honor
their obligations could result in losses to the Company; consequently,
allowances would be established for amounts deemed uncollectible. At
December 31, 1997 and 1996, there were no retrocession agreements.
The Company has entered into several reinsurance contracts. As of
December 31, 1997, the majority of the reinsurance assumed is written
through two contracts, a monthly renewable term agreement with Western
Reserve Life Assurance Co. of Ohio ("WRL"), and a modified coinsurance
agreement with American Skandia Life Assurance Corporation ("Skandia").
As of December 31, 1996, the majority of the reinsurance assumed was
written through WRL.
There was no reinsurance activity for the period ended December 31, 1995.
Policies reinsured under these contracts are administered by WRL and
Skandia (the ceding companies). The ceding companies provide the Company
with all information necessary for processing the reinsurance, including
claims.
(Continued)
29
<PAGE> 30
THE WMA CORPORATION
Notes to Consolidated Financial Statements
The effect of reinsurance on premiums and amounts earned is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1997 1996
---------- ---------
<S> <C> <C>
Reinsurance assumed $5,217,365 2,007,391
Reinsurance ceded -- --
---------- ---------
Net premiums and amounts earned $5,217,365 2,007,391
========== =========
</TABLE>
The effect of reinsurance on policyholder claims and other policy
benefits is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1996
---------- -------
<S> <C> <C>
Direct $ -- --
Reinsurance assumed 2,408,842 976,635
Reinsurance ceded -- --
---------- -------
Net policyholder claims and benefits $2,408,842 976,635
========== =======
</TABLE>
The impact of reinsurance on life insurance in force is shown in the
following schedule (in millions):
<TABLE>
<CAPTION>
Assumed/
Life insurance in force Direct Assumed Ceded Net net %
----------------------- ------ ------- ----- ----- --------
<S> <C> <C> <C> <C> <C>
December 31, 1997 $ -- 4,162 -- 4,162 100%
December 31, 1996 -- 2,673 -- 2,673 100%
</TABLE>
(5) Deferred Policy Acquisition Costs
The following reflects the amounts of policy acquisition costs deferred
and amortized:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1997 1996
----------- -------
<S> <C> <C>
Deferred acquisition cost:
Assumed $ 4,503,338 732,329
Retroceded -- --
----------- -------
Net $ 4,503,338 732,329
=========== =======
Beginning of year $ 732,329 --
Capitalized:
Assumed 3,892,292 738,743
Retroceded -- --
Amortized:
Assumed (121,283) (6,414)
Retroceded -- --
----------- -------
End of year $ 4,503,338 732,329
=========== =======
</TABLE>
(Continued)
30
<PAGE> 31
THE WMA CORPORATION
Notes to Consolidated Financial Statements
(6) Income Tax
Under current Bermuda law, WMA Life is not required to pay any taxes in
Bermuda on either income or capital gains. WMA Life has received an
undertaking from the Minister of Finance in Bermuda that in the event of
any such taxes being imposed, WMA Life will be exempted from taxation
until the year 2016.
The Company determined its income tax expense and liability in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes.
Effective January 1, 1996, WMA Life made an irrevocable election under
section 953(d) of the Internal Revenue Code of 1986, as amended, to be
treated as a domestic insurance company for United Stated Federal income
tax purposes. As a result of this "domestic" election, WMA Life is
subject to U.S.
taxation on its worldwide income as if it were a U.S. corporation.
Total income taxes (benefit) for the years ended December 31, 1997 and
1996 were allocated as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1996
-------- -------
<S> <C> <C>
Tax attributable to:
Income from continuing operations $815,743 112,808
======== =======
Unrealized gains (losses) on securities
available for sale $145,948 (64,725)
======== =======
</TABLE>
The Federal income tax expense from continuing operations for the years
ended December 31, 1997, 1996, and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- ----
<S> <C> <C> <C>
Current $ 29,363 -- --
Deferred 786,380 112,808 --
-------- ------- ----
Total $815,743 112,808 --
======== ======= ====
</TABLE>
The income tax expense from continuing operations for the years ended
December 31, 1997, 1996, and 1995 differed from the amounts computed by
applying the U.S. Federal income tax rate of 34 percent to income before
income taxes as a result of the following:
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995
------------------------ -------- -------- --------
<S> <C> <C> <C>
Computed expected tax expense $793,983 223,434 (120,571)
Change in valuation allowance -- (117,307) 117,307
Other, net 21,760 6,681 3,264
-------- -------- --------
Total $815,743 112,808 --
======== ======== ========
</TABLE>
(Continued)
31
<PAGE> 32
THE WMA CORPORATION
Notes to Consolidated Financial Statements
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying values of assets and liabilities for
financial reporting purposes and Federal income tax purposes. The net
deferred tax liability at December 31, 1997 and 1996 is composed of the
following amounts:
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996
------------------------ ---------- -------
<S> <C> <C>
Deferred tax assets:
Policy acquisition costs $ -- 12,903
Deferred organizational costs 5,888 20,673
Net operating loss carryforward 731,423 166,615
Unrealized losses on securities held for sale -- 64,724
---------- -------
Gross deferred tax assets: 737,311 264,915
Less valuation allowance -- --
---------- -------
Net deferred tax assets 737,311 264,915
---------- -------
Deferred tax liabilities:
Policy benefit reserves 105,363 64,006
Deferred acquisition costs 1,531,135 248,992
Unrealized gains on securities held for sale 81,224 --
---------- -------
Gross deferred tax liabilities 1,717,722 312,998
---------- -------
Net deferred tax liabilities $ 980,411 48,083
========== =======
</TABLE>
There were no valuation allowances for deferred tax assets as of December
31, 1997 and 1996 since it is management's belief that it is more likely
than not that the deferred tax assets will be realized. However, the
amount of the deferred tax asset could be reduced in the near term if
estimates of future taxable income are reduced.
(7) Related Party Transactions
The Company receives certain management and consulting services from WMA
and WMA Management, an affiliate of WMA. During the years ended December
31, 1997 and 1996, the Company paid $110,714 and $76,875, respectively,
to WMA for these services. During the years ended December 31, 1997 and
1996, the Company paid $120,000 and $47,805, respectively, to WMA
Management for these services. A portion of amounts paid to WMA
Management were deferred as policy acquisition costs. During 1995, WMA
funded certain expenditures incurred for the organization of the Company
and for the related public offering. The Company has reimbursed all
amounts paid by WMA for such expenditures.
(8) Statutory Restrictions
WMA Corporation's subsidiary, WMA Life, is a Bermuda-domiciled insurance
company, and as such, is subject to the restrictions of the Bermuda
Insurance Act of 1978. The most significant of these restrictions is that
WMA Life must maintain a minimum of $250,000 capital and surplus. In
addition, WMA Life must maintain a solvency margin, defined as the excess
of statutory assets over statutory liabilities, of at least $250,000.
Through funding from WMA Corporation, WMA Life met this restriction.
(Continued)
32
<PAGE> 33
THE WMA CORPORATION
Notes to Consolidated Financial Statements
(9) Capital Infusion
Pursuant to a registration statement filed with the Securities and
Exchange Commission, the Company had sold as of December 31, 1996,
2,305,550 shares of common stock ($0.001 par value) for $10 a share. This
resulted in $18,805,500 raised at December 31, 1996, which when netted
against deferred offering costs of $516,527, resulted in total common
stock and paid-in capital of $18,288,973. An additional 194,450 shares
were sold during the year ended December 31, 1997.
(10) Commitments and Contingent Liabilities
From time to time, the Company may be subject to reinsurance-related
litigation and arbitration in the normal course of business. Management
does not believe that the Company is a party to any such pending
litigation or arbitration which would have a material adverse effect on
its future operations.
The Company has obtained letters of credit in favor of unaffiliated
insurance companies from which the Company assumes business. The posting
of a letter of credit allows the ceding company to take statutory reserve
credit for reinsurance ceded which would otherwise not be available as
WMA Life is not "authorized" (essentially licensed) by the ceding
company's state of domicile. At December 31, 1997, the amount of the
outstanding letters of credit was $2,030,000. Within the terms of the
agreement, the Company has pledged the fixed maturity securities as
collateral for the letters of credit.
The Company currently leases office space from WMA under a lease
agreement which expires in 2008. The agreement requires the Company to
pay during the first five years of the lease term an amount equivalent to
the rate paid by WMA to its lessor. The rate paid is subject to increase
during the last five years of the lease term. The following is a schedule
of future minimum lease payments as of December 31, 1997:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1998 $ 18,675
1999 18,675
2000 18,675
2001 18,675
2002 18,675
Thereafter 93,375
--------
$186,750
========
</TABLE>
(Continued)
33
<PAGE> 34
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Snyder, Camp, Stewart & Company, LLP was previously the principal
accountants for WMA International Corporation. On December 4, 1996, that firm's
appointment as principal accountants was terminated and KPMG Peat Marwick LLP
was engaged as principal accountants. The decision to change accountants was
approved by the Board of Directors.
In connection with the audit of the period from inception (March 9, 1995)
through December 31, 1995, and the subsequent interim period through December 4,
1996, there were no disagreements with Snyder, Camp, Stewart & Company, LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements if not resolved
to their satisfaction would have caused them to make reference in connection
with their opinion to the subject matter of the disagreement.
The audit report of Snyder, Camp, Stewart & Company, LLP on the financial
statements of WMA International Corporation as of December 31, 1995 and for the
period from inception (March 9, 1995) through December 31, 1995, did not contain
any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope, or accounting principles.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The executive officers and directors of the Company as of December 31,
1997 were as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
S. Hubert Humphrey, Jr............. 55 President and Director of the Company and
President of WMA Life
Thomas W. Montgomery............... 48 Executive Vice President, Secretary and
Director of the Company and Vice President
of WMA Life
Edward F. McKernan................. 42 Senior Vice President, Chief Financial Officer,
Actuary and Director of the Company, and
Vice President and Actuary of WMA Life
C. Simon Scupham................... 44 Director
</TABLE>
34
<PAGE> 35
The following is certain additional information concerning each of the
executive officers and directors of the Company.
Mr. Humphrey became President and Director of the Company in March, 1995
and President of WMA Life in August, 1995. He has also been the President and
Chief Executive Officer of WMA Agency since its founding in January, 1991. Mr.
Humphrey has been involved in the financial services field for 19 years. Prior
to 1991, Mr. Humphrey had been a Regional Vice President and National Sales
Director of A. L. Williams & Associates, Inc., a nationwide financial services
company that was acquired by Primerica Financial Services, Inc. in 1989, and a
Vice President of the A. L. Williams Corporation, an affiliated life reinsurance
company.
Mr. Montgomery has been the Executive Vice President, Secretary and a
Director of the Company since March, 1995 and a Vice President of WMA Life since
August, 1995. He has also been the Executive Vice President of WMA Agency since
March, 1994. Mr. Montgomery is a certified public accountant, and is a former
audit and tax partner in the accounting firms of Richter & Company, P.C. and
Davis, Crittenden, Richter & Fletcher, where he worked from 1973 to 1994.
Mr. McKernan became Senior Vice President and Actuary of the Company in
April, 1996 and was elected a Director of the Company in August, 1997. He was
named Chief Financial Officer of the Company in December, 1997. Mr. McKernan, an
actuary, has been a Vice President and Actuary of WMA Life since April, 1996. He
has also been Senior Vice President and Actuary of WMA Agency since April, 1996.
Immediately prior to joining the Company, Mr. McKernan had been a Senior Manager
for three years in the Life Actuarial Consulting Practice of KPMG Peat Marwick
LLP. From August, 1990 through September, 1993, Mr. McKernan was the Marketing
Actuary of U.S. Operations for Seaboard Life Insurance Company. Prior to his
tenure with this firm, Mr. McKernan was employed by Tillinghast, a Towers Perrin
company, as a consultant, which is an international actuarial consulting firm.
He is a Fellow of the Society of Actuaries (1988) and a Member of the American
Academy of Actuaries (1985).
Mr. Scupham was elected a Director of the Company in April, 1996. He is
the President of CFM Insurance Managers, Ltd., a Bermuda corporation
incorporated in 1988 that provides professional management services to
international companies operating in Bermuda. He is a qualified Chartered
Accountant (CA) and Associate Fellow of the Institute of Mathematics and its
Applications. Mr. Scupham is also President of Mutual Risk Management (Bermuda)
Ltd., the parent company of CFM Insurance Managers, Ltd., and Shoreline Mutual
Management (Bermuda) Limited. Prior to joining CFM, Mr. Scupham served as the
director of Bermuda operations for the Kemper Group.
ITEM 10. EXECUTIVE COMPENSATION.
None of the directors or officers of the Company received any
compensation, including bonuses and perquisites, from the Company during the
year ended December 31, 1997. The Company has no employment agreements.
35
<PAGE> 36
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table indicates the number of shares of Common Stock
beneficially owned by the Directors and Executive Officers of the Company and by
persons known to the Company to beneficially own more than 5% of any class of
the Company's voting securities as of December 31, 1997.
<TABLE>
<CAPTION>
Name and Address of
Title of Class Beneficial Owner Number of Shares(1) Percent of Class
- -------------- ---------------- ------------------- ----------------
<S> <C> <C> <C>
Common Stock (Voting) S. Hubert Humphrey, Jr. 500,000 shares(2) 20.02%
Common Stock(Voting) Thomas W. Montgomery 9,908 shares .40%
Common Stock (Voting) Edward F. McKernan 5,000 shares .20%
Common Stock (Voting) Richard L. Thawley 200,000 shares(3) 8.00%
1110 W. Kettleman Lane, Ste. 24
Lodi, CA 95240
Common Stock (Voting) Monte Holm 153,500 shares(4) 6.21%
2004 Calle de Espana
Las Vegas, NV 89102
</TABLE>
Pledge of Shares
Mr. Humphrey has pledged all 500,000 of his shares of common stock in
connection with loans made to WMA Agency. Part of the loan proceeds were
allocated for use by WMA Agency to provide WMA Agency with sufficient capital to
make loans to certain of its WMA Sales Associates and executive officers (the
"Agency Loans") to acquire shares of common stock in the 1995 offering. As of
December 31, 1997, the outstanding principal amount of these loans was
$1,305,505. The Agency Loans were used to acquire 402,836 shares of common
stock, which are
- ---------------
(1) All shares are owned individually of record unless otherwise
indicated below.
(2) Mr. Humphrey has pledged all of the above shares of Common Stock
as security for several loans. In addition, WMA Agency (of which
Mr. Humphrey is the principal stockholder) holds proxies with
respect to 402,836 shares of common stock.
(3) Mr. Thawley owns 108,200 shares individually of record. 91,800
shares are owned by an IRA rollover trust for the benefit of Mr.
Thawley and his wife.
(4) Mr. Holm owns 3,500 shares individually of record, and 40,000
shares jointly of record with his wife. 110,000 shares are held of
record by seven trusts created by Mr. Holm and his wife.
36
<PAGE> 37
pledged to WMA Agency as security for the Agency Loans. Proxies
are executed in favor of WMA Agency for voting such shares of common stock for
so long as the Agency Loans are outstanding.
Since Mr. Humphrey has pledged all 500,000 of his shares of Common Stock
to Money Services, Inc., upon default on this loan, the lender, Money Services,
Inc. would have voting control, and potentially ownership, of Mr. Humphrey's
shares of Common Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. Humphrey, the Company's Chief Executive Officer, is the beneficial
owner of approximately 20% of the Company's outstanding common shares. Mr.
Humphrey, together with his wife, Norma P. Humphrey, owns all the outstanding
shares of World Marketing Alliance, Inc., which recruits, trains and supervises
the sales force responsible for selling life insurance and annuity contracts
reinsured by the Company, as well as of certain affiliated entities constituting
WMA Agency.
Conflicts with WMA Agency
Commissions for sales of life insurance and annuity contracts reinsured
by the Company are paid to WMA Agency and its agents by the Ceding Life
Companies. Certain directors and executive officers of the Company are also
directors and/or executive officers of WMA Agency and certain of its affiliates.
As a result of such relationships, the interests of WMA Agency with respect to
the commissions received on life insurance sales by WMA Agency from the Ceding
Life Companies (and indirectly under coinsurance agreements from the Company)
may conflict with the interests of the Company in negotiating reinsurance
agreements beneficial to the Company.
Management Agreement
The Company had a management agreement with WMA Management Services, Inc.
("WMA Management") as of December 31, 1997. WMA Management is owned 100% by Mr.
Humphrey, who is the sole director and President. During 1997, WMA Management
was responsible for the day-to-day activities of the Company. For these
services, WMA Management received an annual fee of $120,000 in 1997. Due to the
Company's expected employment of its own personnel in 1998, WMA Management will
provide only such consulting services as the Company may from time to time
request. Pursuant to the management agreement, the fee payable for such services
will not exceed $1,000 per month. The management agreement is terminable by
either party upon 60 days notice.
Principal Representative Agreement
On August 2, 1995, WMA Life entered into an agreement with CFM Insurance
Managers, Ltd., a Bermuda corporation providing professional management services
to international companies operating in Bermuda. Pursuant to this agreement, CFM
acts as the Principal Representative for
37
<PAGE> 38
WMA Life in Bermuda. The Company paid CFM $60,000 in fees during 1997 for
services rendered pursuant to its agreement with the Company.
The Company receives certain management and consulting services from WMA
Agency. During the years ended December 31, 1996 and 1997, the Company paid
$76,875 and $110,714, respectively, to WMA Agency for these services. During
1995, WMA Agency funded certain expenditures incurred for the organization of
the Company and for the related public offering. The Company has reimbursed all
amounts paid by WMA Agency for such expenditures.
Future Conflicts of Interest
The Company has in the past and may from time to time in the future enter
into other transactions with WMA Agency and other affiliates of its directors
and officers, provided that the terms thereof are, in the view of the Board of
Directors, no less favorable to the Company than could be obtained from a third
party.
The Company recently amended its By-Laws to provide that, upon approval
of an additional independent director, any transaction involving the Company in
which a director or executive officer has a material, direct or indirect,
interest must be approved by a majority vote of the Board of Directors as well
as by two independent and disinterested directors, upon full disclosure of all
relevant facts, or by vote of the holders of a majority of the outstanding
shares of common stock entitled to vote.
Lack of Separate Legal Representation
Counsel for the Company, Merritt & Tenney, LLP, of Atlanta, Georgia, also
represents WMA Agency, Mr. Humphrey, and Mr. Montgomery.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
No reports were required to be filed on Form 8-K.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Shareholders' Agreement (3)
4.2 Specimen Stock Certificate (2)
</TABLE>
38
<PAGE> 39
<TABLE>
<S> <C>
4.4 Revised Specimen Warrant (4)
4.5 Loan Agreement between WMA Agency and Offering Subscribers (3)
10 Material Contracts - To be filed by Amendment
10.1 Loan Agreement between Money Services, Inc. and WMA Agency (3)
10.2 Modification of Loan & Security Agreements between Money Services, Inc.
and WMA Agency - To be filed by Amendment
10.3 Management Agreement with WMA Management (3)
10.4 Reinsurance Agreement between WMA Life and Western Reserve Life
Assurance Company of Ohio dated - To be filed by Amendment
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
[FOOTNOTES ON NEXT PAGE]
39
<PAGE> 40
FOOTNOTES TO PRECEDING PAGE:
(1) Filed On June 28, 1995 as part of the Registration Statement and
incorporated herein by reference pursuant to Rule 12b-23.
(2) Filed On September 22, 1995 as part of the Registration Statement and
incorporated herein by reference pursuant to Rule 12b-23.
(3) Filed on November 17, 1995 as part of the Registration Statement and
incorporated herein by reference pursuant to Rule 12b-23.
(4) Filed on December 20, 1995 as part of the Registration Statement and
incorporated herein by reference pursuant to Rule 12b-23.
(5) Filed on December 21, 1995 as part of the Registration Statement and
incorporated herein by reference pursuant to Rule 12b-23.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
40
<PAGE> 41
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
(Registrant) The WMA Corporation
--------------------------------------------
By (Signature and Title) /s/ S. Hubert Humphrey, Jr.
------------------------------------------------------
S. Hubert Humphrey, Jr., President and Director
Date: March 31, 1998
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and In the capacities and on
the dates indicated.
By (Signature and Title) /s/ S. Hubert Humphrey, Jr.
------------------------------------------------------
S. Hubert Humphrey, Jr., President and Director
Date: March 31, 1998
By (Signature and Title) /s/ Edward F. McKernan
------------------------------------------------------
Edward F. McKernan, Senior Vice President
Chief Financial Officer, Actuary, and Director
Date: March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WMA CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 17,782,055
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 630,929
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 18,412,984
<CASH> 1,469,663
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 4,503,338
<TOTAL-ASSETS> 25,065,905
<POLICY-LOSSES> 1,293,917
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,500
<OTHER-SE> 22,073,875
<TOTAL-LIABILITY-AND-EQUITY> 25,065,905
5,217,365
<INVESTMENT-INCOME> 1,087,465
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 495,124
<BENEFITS> 2,408,842
<UNDERWRITING-AMORTIZATION> 121,283
<UNDERWRITING-OTHER> 1,454,204
<INCOME-PRETAX> 2,335,244
<INCOME-TAX> 815,743
<INCOME-CONTINUING> 1,519,501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,519,501
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
