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EX-32.2 - EXHIBIT 32.2 - US Alliance Corpex32-2.htm
EX-32.1 - EXHIBIT 32.1 - US Alliance Corpex32-1.htm
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EX-31.1 - EXHIBIT 31.1 - US Alliance Corpex31-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2016.

 

or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________________________ to _________________________________

 

Commission File Number: 000-55627

 

US ALLIANCE CORPORATION
(Exact name of registrant as specified in its charter)

 

 KANSAS

 26-4824142

 (State or other jurisdiction of incorporation or organization) 

 (I.R.S. Employer Identification No.)

   
4123 SW Gage Center Drive, Suite 240, Topeka, Kansas 66604
(Address of principal executive offices)  (Zip Code)
   
(785) 228-0200
(Registrant’s telephone number, including area code)

            

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. [X] Yes [ ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      [ ] Yes [ X ] No

 

    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

 [  ] Large accelerated filer 

 [  ] Accelerated filer 

 

 

 [  ] Non-accelerated filer

 [ X ] Smaller Reporting Company

 

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ]Yes [ X ] No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Common stock, $0.10 par value 5,552,848 shares outstanding as of July 29, 2016

 

 
 

 

 

US ALLIANCE CORPORATION

 

FORM 10-Q

 

TABLE OF CONTENTS

 

Part I - Financial Information

 

Item

 

Item Description

 

Page

Item 1

 

Financial Statements

 

3

         
   

Consolidated Balance Sheets

 

3

         
   

Consolidated Statements of Comprehensive Loss

 

4

         
   

Consolidated Statements of Changes in Shareholders' Equity

 

5

         
   

Consolidated Statements of Cash Flows

 

6

         
   

Notes to Consolidated Financial Statements

 

7

         

Item 2

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

14

         

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

23

         

Item 4

 

Controls and Procedures

 

23

 

Part II - Other Information

         

Item

 

Item Description

 

Page

Item 1

 

Legal Proceedings

 

23

         

Item 1A

 

Risk Factors

 

23

         

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

23

         

Item 3

 

Defaults Upon Senior Securities

 

23

         

Item 4

 

Mine Safety Disclosures

 

24

         

Item 5

 

Other Information

 

24

         

Item 6

 

Exhibits

 

25

         
   

Signatures

 

25

 

 
2

 

 

ITEM 1.      FINANCIAL STATEMENTS

 

 

US Alliance Corporation        

Consolidated Balance Sheets         

 

   

June 30, 2016

   

December 31, 2015

 
   

(unaudited)

         

Assets

               
Investments:                

Available for sale fixed maturity securities (amortized cost: $9,348,107 and $8,310,159 as of June 30, 2016 and December 31, 2015, respectively)

  $ 9,755,263     $ 8,131,119  

Available for sale equity securities (cost: $4,249,374 and $3,325,705 as of June 30, 2016 and December 31, 2015, respectively)

    4,417,387       3,604,268  
Total Investments     14,172,650       11,735,387  
                 

Cash and cash equivalents

    3,535,682       2,466,526  

Investment income due and accrued

    82,717       78,540  

Reinsurance related assets

    138,142       21,444  

Deferred acquisition costs, net

    124,073       86,053  

Property, equipment and software, net

    264,178       283,582  

Pre-paid expenses

    72,438       123,162  

Other assets

    702       7,504  

Total assets

  $ 18,390,582     $ 14,802,198  
                 
                 

Liabilities and Shareholders' Equity

               

Liabilities:

               

Policy liabilities

               

Deposit-type contracts

  $ 2,402,115     $ 1,573,988  

Policyholder benefit reserves

    3,616,529       2,576,964  

Advance premiums

    95,421       69,573  

Total policy liabilities

    6,114,065       4,220,525  
                 

Accounts payable and accrued expenses

    39,997       85,888  

Other liabilities

    1,895       4,992  

Total liabilities

    6,155,957       4,311,405  
                 

Shareholders' Equity:

               

Common stock, $0.10 par value. Authorized 9,000,000 shares; issued and outstanding 5,551,348 and 5,177,245 shares as of June 30, 2016 and December 31, 2015, respectively

    555,135       517,725  

Outstanding warrants

    -       15,876  

Common stock subscribed

    -       13,799  

Common stock subscription receivable

    -       (827,952 )

Additional paid-in capital

    18,017,275       17,018,285  

Accumulated deficit

    (6,912,954 )     (6,146,463 )

Accumulated other comprehensive income (loss)

    575,169       (100,477 )

Total shareholders' equity

    12,234,625       10,490,793  
                 

Total liabilities and shareholders' equity

  $ 18,390,582     $ 14,802,198  

 

 

See Notes to Consolidated Financial Statements. (unaudited)

 

 
3

 

 

US Alliance Corporation

Consolidated Statements of Comprehensive Loss

(Unaudited)

 

   

Six Months Ended June 30,

   

Three Months Ended June 30,

 
   

2016

   

2015

   

2016

   

2015

 

Income:

                               

Premium income

  $ 3,230,836     $ 1,985,232     $ 1,873,464     $ 962,398  

Net investment income

    203,711       116,761       112,450       65,872  

Net realized (loss) gain on sale of securities

    10,764       102       (74 )     102  

Other income

    35,590       5,148       22,185       2,995  

Total income

    3,480,901       2,107,243       2,008,025       1,031,367  
                                 

Expenses:

                               

Death claims

    333,264       197,788       216,737       90,181  

Policyholder benefits

    1,861,670       1,091,577       1,139,525       587,138  

Increase in policyholder reserves

    762,904       528,255       403,352       263,181  

Commissions, net of deferrals

    226,598       154,016       118,383       64,874  

Amortization of deferred acquisition costs

    89,099       58,328       51,642       24,049  

Salaries & benefits

    393,184       242,135       204,817       111,490  

Other operating expenses

    580,673       460,294       313,343       165,540  

Total expense

    4,247,392       2,732,393       2,447,799       1,306,453  
                                 

Net loss

  $ (766,491 )   $ (625,150 )   $ (439,774 )   $ (275,086 )
                                 

Unrealized net holding (losses) gains arising during the period

    686,410       (103,890 )     403,993       (222,383 )

Reclassification adjustment for loss (gains) included in net loss

    (10,764 )     (102 )     74       (102 )

Other comprehensive (loss) income

    675,646       (103,992 )     404,067       (222,485 )
                                 

Comprehensive loss

  $ (90,845 )   $ (729,142 )   $ (35,707 )   $ (497,571 )
                                 

Net loss per common share, basic and diluted

  $ (0.14 )   $ (0.15 )   $ (0.08 )   $ (0.06 )

 

 

See Notes to Consolidated Financial Statements. (unaudited)

  

 
4

 

 

US Alliance Corporation

Consolidated Statements of Changes in Shareholders' Equity

Six Months Ended June 30, 2016 and 2015

(unaudited)

 

   

Number of Shares of Common Stock

   

Common Stock

   

Additional Paid-in Capital

   

Outstanding Warrants

   

Common Stock Subscribed

   

Subscription Receivable

   

Accumulated Other 

Comprehensive Income / (Loss)

   

Accumulated Deficit

   

Total

 

Balance, January 1, 2015

    4,232,400     $ 423,240     $ 11,353,508     $ 25,324     $ -     $ -     $ 287,082     $ (4,809,086 )   $ 7,280,068  

Common stock issued upon exercise of warrants, $6.00 per share

    353,465       35,347       2,088,977       (3,535 )     -       -       -       -       2,120,789  

Costs associated with warrant exercise

    -       -       (255,992 )     -       -       -       -       -       (255,992 )

Common stock subscribed

    -       -       571,930       -       9,694       (581,624 )     -       -       -  

Other comprehensive loss

    -       -       -       -       -       -       (103,992 )     -       (103,992 )

Net loss

    -       -       -       -       -       -       -       (625,150 )     (625,150 )

Balance, June 30, 2015

    4,585,865     $ 458,587     $ 13,758,423     $ 21,789     $ 9,694     $ (581,624 )   $ 183,090     $ (5,434,236 )   $ 8,415,723  
                                                                         

Balance, January 1, 2016

    5,177,245     $ 517,725     $ 17,018,285     $ 15,876     $ 13,799     $ (827,952 )   $ (100,477 )   $ (6,146,463 )   $ 10,490,793  

Common stock issued upon exercise of warrants, $6.00 per share

    372,003       37,200       2,210,694       (15,876 )     -       -       -       -       2,232,018  

Common stock issued, $7 per share

    2,100       210       14,490       -       -       -       -       -       14,700  

Costs associated with common stock issued

    -       -       (412,041 )     -       -       -       -       -       (412,041 )

Common stock subscribed

    -       -       (814,153 )     -       (13,799 )     827,952       -       -       -  

Other comprehensive income

    -       -       -       -       -       -       675,646       -       675,646  

Net loss

    -       -       -       -       -       -       -       (766,491 )     (766,491 )

Balance, June 30, 2016

    5,551,348     $ 555,135     $ 18,017,275     $ -     $ -     $ -     $ 575,169     $ (6,912,954 )   $ 12,234,625  

 

 

See Notes to Consolidated Financial Statements. (unaudited)

 

 
5

 

 

US Alliance Corporation

Consolidated Statements of Cash Flows

(unaudited)

 

   

Six Months Ended June 30,

 
   

2016

   

2015

 

Cash Flows from Operating Activities:

               

Net loss

  $ (766,491 )   $ (625,150 )

Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in) operating activities:

               

Depreciation and amortization

    19,404       14,284  

Net realized losses (gains) on the sale of securities

    (10,764 )     (102 )

Amortization of investment securities, net

    7,397       9,420  

Deferred acquisition costs capitalized

    (127,119 )     (74,754 )

Deferred acquisition costs amortized

    89,099       58,328  

Interest credited on deposit type contracts

    32,531       11,936  

(Increase) decrease in operating assets:

               

Investment income due and accrued

    (4,177 )     (2,598 )

Reinsurance related assets

    (116,698 )     (6,652 )

Pre-paid expenses

    50,724       (31,006 )

Other assets

    6,802       40,341  

Increase (decrease) in operating liabilities:

               

Policyowner benefit reserves

    1,039,565       530,478  

Advance premiums

    25,848       18,167  

Other liabilities

    (3,097 )     647  

Accounts payable and accrued expenses

    (45,891 )     (6,672 )

Net cash provided by (used in) operating activities

    197,133       (63,333 )
                 

Cash Flows from Investing Activities:

               

Available-for-sale securities

               

Purchase of fixed income investments

    (1,512,774 )     (498,652 )

Purchase of equity investments

    (805,227 )     (408,342 )

Proceeds from fixed income sales and repayments

    467,504       226,427  

Proceeds from equity sales and repayments

    92,247       -  

Purchase of property, equipment and software

    -       (21,586 )

Net cash (used in) investing activities

    (1,758,250 )     (702,153 )
                 

Cash Flows from Financing Activities:

               

Receipts on deposit-type contracts

    949,295       213,522  

Withdrawals on deposit-type contracts

    (153,699 )     (26,220 )

Proceeds received from exercise of warrants, net of costs of issuance

    1,834,677       1,864,797  

Net cash provided by financing activities

    2,630,273       2,052,099  
                 

Net increase in cash and cash equivalents

    1,069,156       1,286,613  
                 

Cash and Cash Equivalents:

               

Beginning

    2,466,526       575,005  

Ending

  $ 3,535,682     $ 1,861,618  

 

 

See Notes to Consolidated Financial Statements. (unaudited)

 

 
6

 

 

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

 

Note 1.     Description of Business and Significant Accounting Policies

 

Description of business: US Alliance Corporation (“the Company”) is a Kansas corporation located in Topeka, Kansas. The Company was incorporated April 24, 2009, as a holding company to form, own, operate and manage a life insurance company and its marketing and investment affiliates. On June 9, 2011, the wholly owned subsidiary, US Alliance Life and Security Company was incorporated. US Alliance Life and Security Company received its Certificate of Authority from the Kansas Insurance Department (KID) effective January 2, 2012. On April 23, 2012, US Alliance Investment Corporation and US Alliance Marketing Corporation were incorporated as wholly-owned subsidiaries of the Company to provide investment management and marketing services.

 

The Company terminated its initial public offering on February 24, 2013. During the balance of 2013, the Company achieved approval of an array of life insurance and annuity products, began development of various distribution channels and commenced insurance operations and product sales. The Company sold its first insurance product on May 1, 2013. The Company continued to expand its product offerings and distribution channels throughout 2014 and 2015. On February 24, 2015, the Company commenced a warrant exercise offering set to expire on February 24, 2016. On February 24, 2016 the Company extended its current offering until February 24, 2017 and made additional shares available for purchase.

 

The Company began offering third party administrative (“TPA”) services in 2015. TPA agreements generate service fee income for the Company. The Company currently has one TPA agreement in place. The Company has been able to perform its TPA services using existing resources.

 

Basis of presentation: The accompanying unaudited financial statements have been prepared in accordance with accounting priniciples generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods have been included.

 

The results of operation for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the year ended December 31, 2016 or for any other interim period or for any other future year. Certain financial information which is normally included in notes to financial statements prepared in accordance with US GAAP, but which are not required for interim reporting purposes, has been condensed or omitted. The accompanying financial statements and notes thereto should be read in conjuction with the financial statements and notes thereto included in the Company’s report on Form 10 and ammendments thereto for the year ended December 31, 2015.

 

Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated from the consolidated financial statements.

 

Area of Operation: US Alliance Life and Security Company is authorized to operate in the states of Kansas and North Dakota and was granted authority to operate in the State of Missouri on April 21, 2016.

 

Common stock and earnings (loss) per share: The par value for common stock is $0.10 per share with 9,000,000 shares authorized. As of June 30, 2016 and December 31, 2015 the company had 5,551,348 and 5,177,245 common shares issued and outstanding, respectively.

 

Earnings (loss) per share attributable to the Company’s common stockholders were computed based on the net loss and the weighted average number of shares outstanding during each year. The weighted average number of shares outstanding during the quarters ended June 30, 2016 and 2015 were 5,538,475 and 4,356,622 shares, respectively. The weighted average number of shares outstanding during the six months ended June 30, 2016 and 2015 were 5,357,056 and 4,280,183 shares, respectively. Potential common shares are excluded from the computation when their effect is anti-dilutive. Basic and diluted net loss per common share is the same for the quarters and six months ended June 30, 2016 and 2015 because all warrants for common shares are anti-dilutive.

 

As of December 31, 2015 the Company had a stock subscription receivable of $827,952. This represents the value of share purchases agreed to but which will settle after the statement date. There was no such subscription receivable balance as of June 30, 2016.

 

New accounting standards: In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) regarding accounting for revenue recognition that identifies the accounting treatment for an entity's contracts with customers. Although insurance contracts are excluded from this ASU, other customer contracts of the Company would be covered. This guidance is effective for public entities for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating this guidance, but it does not believe that there will be a material impact to the consolidated financial statements.

 

In January 2016, the FASB issued ASU 2016-01 Financial Instruments – Overall (sub-topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities regarding accounting for the recognition, measurement, presentation and disclosure of financial instruments. This guidance changes how entities account for equity investments that do not result in consolidation and are not accounted for under the equity method of accounting. Entities will be required to measure these investments at fair value at the end of each reporting period and recognize the changes in fair value in net income. A practicability exception will be available for equity investments that do not have readily determinable fair value, however; the exception requires the company to adjust the carrying amount for impairment and observable price changes in orderly transactions for the identical or similar investment of the same issuer. This guidance is effective for public entities for annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the guidance to determine the impact to the consolidated financial statements.

 

All other new accounting standards and updates of existing standards issued through the date of this filing were considered by management and did not relate to accounting policies and procedures pertinent or material to the Company at this time.

 

 
7

 

 

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

 

Note 2.   Investments

 

The amortized cost and fair value of available for sale and held to maturity investments as of June 30, 2016 and December 31, 2015 is as follows:

 

   

June 30, 2016

 
   

Cost or

   

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

         
   

Cost

   

Gains

   

Losses

   

Fair Value

 
   

(unaudited)

 
Available for sale:                                

Fixed maturities:

                               

US Treasury securities

  $ 313,150     $ 1,700     $ -     $ 314,850  

Corporate bonds

    2,924,809       124,256       (12,677 )     3,036,388  

Municipal bonds

    2,514,824       199,193       -       2,714,017  

Mortgage backed and asset backed securities

    3,595,324       96,633       (1,949 )     3,690,008  

Total fixed maturities

    9,348,107       421,782       (14,626 )     9,755,263  

Equities:

                               

Equities

    4,059,768       262,734       (118,961 )     4,203,541  

Other equity investments

    189,606       24,822       (582 )     213,846  

Total equities

    4,249,374       287,556       (119,543 )     4,417,387  

Total available for sale

  $ 13,597,481     $ 709,338     $ (134,169 )   $ 14,172,650  

 

   

December 31, 2015

 
   

Cost or

Amortized

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

Fair Value

 

Available for sale:

                               

Fixed maturities:

                               

US Treasury securities

  $ 461,132     $ -     $ (34,816 )   $ 426,316  

Corporate bonds

    3,039,539       15,715       (143,701 )     2,911,553  

Municipal bonds

    1,726,098       28,634       (10,595 )     1,744,137  

Mortgage backed and asset backed securities

    3,083,390       19,554       (53,831 )     3,049,113  

Total fixed maturities

    8,310,159       63,903       (242,943 )     8,131,119  

Equities:

                               

Equities

    3,387,927       219,883       (177,756 )     3,430,054  

Other equity investments

    137,778       36,436       -       174,214  

Total equities

    3,525,705       256,319       (177,756 )     3,604,268  

Total available for sale

  $ 11,835,864     $ 320,222     $ (420,699 )   $ 11,735,387  

 

The amortized cost and fair value of debt securities as of June 30, 2016, by contractual maturity, are shown below. Equity securities do not have stated maturity dates and therefore are not included in the following maturity summary. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

   

Amortized

         
   

Cost

   

Fair Value

 
   

(unaudited)

 
Amounts maturing in:                

After one year through five years

  $ 953,840     $ 971,715  

After five years through ten years

    1,441,509       1,494,889  

More than 10 years

    3,357,434       3,598,651  

Mortgage backed and asset backed securities

    3,595,324       3,690,008  

Total fixed maturities

  $ 9,348,107     $ 9,755,263  
 
8

 

 

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited) 

 

Proceeds from the sale of securities, maturities, and asset paydowns for the first six months of 2016 and 2015 were $559,751 and $226,427, respectively. Realized gains and losses related to the sale of securities are summarized as follows:

 

   

Six Months Ended June 30,

 
   

(unaudited)

 
   

2016

   

2015

 

Gross gains

  $ 12,830     $ 102  

Gross losses

    (2,066 )     -  

Net security (losses) gains

  $ 10,764     $ 102  

 

Proceeds from the sale of securities, maturities, and asset paydowns for the three months ended June 30, 2016 and 2015 were $314,111 and $144,842, respectively. Realized gains and losses related to the sale of securities for the three months ended June 30, 2016 and 2015 are summarized as follows:

 

 

   

Three Months Ended June 30,

 
   

(unaudited)

 
   

2016

   

2015

 

Gross gains

  $ 1,992     $ 102  

Gross losses

    (2,066 )     -  

Net security (losses) gains

  $ (74 )   $ 102  

 

Gross unrealized losses by duration are summarized as follows:

 

   

(unaudited)

 
   

Less than 12 months

   

Greater than 12 months

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 
   

Value

   

Loss

   

Value

   

Loss

   

Value

   

Loss

 

June 30, 2016

                                               

Available for sale:

                                               

Fixed maturities:

                                               

Corporate bonds

  $ 46,903     $ (3,029 )   $ 241,023     $ (9,648 )   $ 287,926     $ (12,677 )

Mortgage backed and asset backed securities

    37,436       (36 )     143,604       (1,913 )     181,040       (1,949 )

Total fixed maturities

    84,339       (3,065 )     384,627       (11,561 )     468,966       (14,626 )

Equities:

                                               

Equities

    790,276       (24,304 )     1,163,760       (94,657 )     1,954,036       (118,961 )

Other equity investments

    40,936       (582 )     -       -       40,936       (582 )

Total equities

    831,212       (24,886 )     1,163,760       (94,657 )     1,994,972       (119,543 )

Total available for sale

  $ 915,551     $ (27,951 )   $ 1,548,387     $ (106,218 )   $ 2,463,938     $ (134,169 )

 

   

(audited)

 
   

Less than 12 months

   

Greater than 12 months

   

Total

 
   

Fair

Value

   

Unrealized

Loss

   

Fair

Value

   

Unrealized

Loss

   

Fair

Value

   

Unrealized

Loss

 

December 31, 2015

                                               

Available for sale:

                                               

Fixed maturities:

                                               

US Treasury securities

  $ 197,719     $ (1,351 )   $ 228,597     $ (33,465 )   $ 426,316     $ (34,816 )

Corporate bonds

    2,141,253       (143,701 )     -       -       2,141,253       (143,701 )

Municipal bonds

    675,885       (10,595 )     -       -       675,885       (10,595 )

Mortgage backed and asset backed securities

    1,943,017       (39,189 )     438,173       (14,642 )     2,381,190       (53,831 )

Total fixed maturities

    4,957,874       (194,836 )     666,770       (48,107 )     5,624,644       (242,943 )

Equities:

                                               

Equities

    1,036,877       (75,352 )     820,370       (102,404 )     1,857,247       (177,756 )

Total equities

    1,036,877       (75,352 )     820,370       (102,404 )     1,857,247       (177,756 )

Total available for sale

  $ 5,994,751     $ (270,188 )   $ 1,487,140     $ (150,511 )   $ 7,481,891     $ (420,699 )

 

Unrealized losses occur from market price declines that may be due to a number of factors, including economic downturns, changes in interest rates, competitive forces within an industry, issuer specific events, operational difficulties, lawsuits, and market pricing anomalies caused by factors such as temporary lack of liquidity.

 

The total number of securities in the investment portfolio in an unrealized loss position as of June 30, 2016 was 20, which represented an unrealized loss of $134,169 of the aggregate carrying value of those securities. The 20 securities breakdown as follows: 5 bonds, 3 mortgage and asset backed securities, 8 common stocks, 2 high yield corporate bond fund, 1 preferred stock index fund, and 1 senior loan fund. The Company determined that no securities were considered to be other-than-temporarily impaired as of December 31, 2015. The Company determined that one security was other-than-temporarily impaired as of June 30. 2016 and the write down of the security was recorded as a realized loss. The unrealized gains on the remainder of the available for sale portfolio as of June 30, 2016 were $709,338. 

 

 
9

 

 

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

 

Note 3.     Fair Value Measurements

 

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. The Company uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

 

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement rate.

 

 

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The Company’s Level 2 assets and liabilities include fixed maturity securities with quoted prices that are traded less frequently than exchange-traded instruments or assets and liabilities whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.  This category generally includes U.S. Government and agency mortgage-backed debt securities and corporate debt securities.

 

 

Level 3 inputs are unobservable for the asset or liability and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

 

Investments, available for sale: Investments in securities that are classified as available for sale are recorded at fair value utilizing Level 1 and Level 2 measurements.

 

 
10

 

 

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

 

The following table presents the amounts of assets measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015:

 

   

June 30, 2016 (unaudited)

 
   

Total

   

Level 1

   

Level 2

   

Level 3

 

Available for sale:

                               

Fixed maturities:

                               

US Treasury securities

  $ 314,850     $ 314,850     $ -     $ -  

Corporate bonds

    3,036,388       -       3,036,388       -  

Municipal bonds

    2,714,017       -       2,714,017       -  

Mortgage backed and asset backed securities

    3,690,008       -       3,690,008       -  

Total fixed maturities

    9,755,263       314,850       9,440,413       -  

Equities:

                               

Equities

    4,203,541       4,203,541       -       -  

Other equity investments

    213,846       213,846       -       -  

Total equities

    4,417,387       4,417,387       -       -  

Total

  $ 14,172,650     $ 4,732,237     $ 9,440,413     $ -  

 

 

   

Decmeber 31, 2015

 
   

Total

   

Level 1

   

Level 2

   

Level 3

 

Available for sale:

                               

Fixed maturities:

                               

US Treasury securities

  $ 426,316     $ 426,316     $ -     $ -  

Corporate bonds

    2,911,553       -       2,911,553       -  

Municipal bonds

    1,744,137       -       1,744,137       -  

Mortgage backed and asset backed securities

    3,049,113       -       3,049,113       -  

Total fixed maturities

    8,131,119       426,316       7,704,803       -  

Equities:

                               

Equities

    3,430,054       3,430,054       -       -  

Other equity investments

    174,214       174,214       -       -  

Total equities

    3,604,268       3,604,268       -       -  

Total

  $ 11,735,387     $ 4,030,584     $ 7,704,803     $ -  

 

The Company discloses the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The estimated fair value approximates carrying value for accrued interest. The methodologies for other financial assets and financial liabilities are discussed below:

 

Cash and cash equivalents: The carrying amounts approximate fair value because of the short maturity of these instruments.

 

Policyholder deposits in deposit-type contracts: Policyholder deposits in investment type contracts have fair value estimated based upon the actuarial assumptions of the underlying product.

 

The estimated fair values of the Company’s financial assets and liabilities at June 30, 2016 and December 31, 2015 are as follows:

 

   

June 30, 2016

   

December 31, 2015

 
   

(unaudited)

                 
   

Carrying Value

   

Fair Value

   

Carrying Value

   

Fair Value

 

Financial Assets:

                               

Cash and cash equivalents

  $ 3,535,682     $ 3,535,682     $ 2,466,526     $ 2,466,526  

Investments, at fair value

    14,172,650       14,172,650       11,735,387       11,735,387  

Total Financial Assets

  $ 17,708,332     $ 17,708,332     $ 14,201,913     $ 14,201,913  
                                 

Financial Liabilities:

                               

Policyholder deposits in deposit-type contracts

  $ 2,402,115     $ 2,406,919     $ 1,573,988     $ 1,406,724  

Total Financial Liabilities

  $ 2,402,115     $ 2,406,919     $ 1,573,988     $ 1,406,724  

 

 

 
11

 

 

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

 

Note 4.     Income Tax Provision

 

No income tax expense or (benefit) has been reflected for the quarters ended June 30, 2016 and 2015 due to the lack of taxable net income generated by the Company and the 100% valuation allowance pertaining to the deferred tax asset. The difference between the reported amount of income tax expense and the amount expected based upon statutory rates is primarily due to the increase in the valuation allowance on deferred taxes.

 

The net operating loss carryforwards for the Company are $4,606,221 and $3,940,774 as of June 30, 2016 and December 31, 2015, respectively. The components of the deferred tax assets and liabilities due to book and tax differences are the following: fixed asset depreciation, net operating loss carryforward, net unrealized losses on investment securities, policy-owner benefit reserves and deferred acquisition costs. The net deferred tax asset is offset 100 percent by the valuation allowance.

  

Note 5.     Warrants

 

The Company conducted its public stock offering through the sale of units. Each unit was sold for $1,000 and consisted of 200 shares of common stock and a warrant to purchase an additional 200 shares of common stock at $6.00 per share. The warrants were originally scheduled to expire, if not exercised, February 24, 2016. The board of directors of the Company extended the warrant expiration date to April 1, 2016. As of December 31, 2014 warrant-holders had the right to purchase 2,532,400 shares of common stock. On February 24, 2015, the Company registered a warrant exercise offering with the Kansas Securities Commissioner. During 2015, warrant-holders exercised warrants for the purchase of 944,845 shares of common stock. As of December 31, 2015 warrant-holders had the right to purchase 1,587,555 shares of common stock. During the first six months of 2016, warrant-holders exercised their rights to purchase an additional 372,003 shares of common stock.

Management engaged the services of an experienced valuation firm to value the warrants as of February 24, 2013. The valuation performed valued the warrants to be worth $0.01 per share of common stock and management has allocated this amount from additional paid-in capital to the outstanding warrants. As the warrants have been exercised, the value allocated to the warrants exercised has been restored to additional paid-in capital. The value of outstanding warrants was reduced to zero at March 31, 2016. During the warrant exercise period, we were not aware of any sale of our warrants.

 

 
12

 

 

Note 6.     Subsequent Events

 

All of the effects of subsequent events that provide additional evidence about conditions that existed at the balance sheet date, including the estimates inherent in the process of preparing the consolidated financial statements, are recognized in the consolidated financial statements. The Company does not recognize subsequent events that provide evidence about conditions that did not exist at the balance sheet date but arose after, but before the consolidated financial statements are issued. In some cases, unrecognized subsequent events are disclosed to keep the consolidated financial statements from being misleading.

 

The Company has evaluated subsequent events through August 11, 2016, the date on which the consolidated financial statements were issued.

 

 
13

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Form 10-Q. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements.

 

Overview

 

USAC was formed as a Kansas corporation on April 24, 2009 for the purpose of raising capital to form a new Kansas-based life insurance company. We presently conduct our business through our three wholly-owned subsidiaries: USALSC, a life insurance corporation; USAMC, an insurance marketing corporation; and USAIC, an investment management corporation

 

On January 2, 2012, USALSC was issued a Certificate of Authority to conduct life insurance business in the State of Kansas. We began third party administrative services in 2015.

 

Critical Accounting Policies and Estimates

 

Our accounting and reporting policies are in accordance with GAAP. Preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The following is an explanation of our accounting policies and the estimates considered most significant by management. These accounting policies inherently require significant judgment and assumptions and actual operating results could differ significantly from management’s estimates determined using these policies. We believe the following accounting policies, judgments and estimates are the most critical to the understanding of our results of operations and financial position. A detailed discussion of significant accounting policies is provided in this report in the Notes to Consolidated Financial Statements included with this Registration Statement.

 

Valuation of Investments

 

The Company's principal investments are in fixed maturity and equity securities. Fixed maturity and equity securities, classified as available for sale, are carried at their fair value in the consolidated balance sheets, with unrealized gains or losses recorded in comprehensive income (loss). Our fixed income investment manager utilizes external independent third-party pricing services to determine the fair values of investment securities available for sale.

 

We have a policy and process in place to identify securities that could potentially have an impairment that is other-than-temporary. The assessment of whether impairments have occurred is based on a case-by-case evaluation of underlying reasons for the decline in fair value. We consider severity of impairment, duration of impairment, forecasted recovery period, industry outlook, financial condition of the issuer, issuer credit ratings and whether we intend to sell a security, or it is more likely than not that we would be required to sell a security, prior to the recovery of the amortized cost.

 

The recognition of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If we intend to sell a security or it is more likely than not that we would be required to sell a security prior to recovery of the amortized cost, the difference between amortized cost and fair value is recognized in the income statement as an other-than-temporary impairment. As it relates to debt securities, if we do not expect to recover the amortized basis, do not plan to sell the security and if it is not more likely than not that we would be required to sell a security before the recovery of its amortized cost, the other-than-temporary impairment would be recognized. We would recognize the credit loss portion through earnings in the income statement and the noncredit loss portion in accumulated other comprehensive loss. The Company had one investment security that was evaluated to be other than temporarily impaired as of June 30, 2016. The Company subsequently sold this security in July 2016.

 

 
14

 

 

Deferred Acquisition Costs

 

Incremental direct costs, net of amounts ceded to reinsurers, that result directly from and are essential to a product sale and would not have been incurred by us had the sale not occurred, are capitalized, to the extent recoverable, and amortized over the life of the premiums produced. Recoverability of deferred acquisition costs is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense.

 

Reinsurance

 

In the normal course of business, we seek to limit aggregate and single exposure to losses on risk by purchasing reinsurance. The amounts reported in the consolidated balance sheets as reinsurance recoverable include amounts billed to reinsurers on losses paid as well as estimates of amounts expected to be recovered from reinsurers on insurance liabilities that have not yet been paid. Reinsurance recoverable on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Insurance liabilities are reported gross of reinsurance recoverable. Management believes the recoverables are appropriately established. We diversify our credit risks related to reinsurance ceded. Reinsurance premiums are generally reflected in income in a manner consistent with the recognition of premiums on the reinsured contracts. Reinsurance does not extinguish our primary liability under the policies written. We regularly evaluate the financial condition of our reinsurers including their activities with respect to claim settlement practices and commutations, and establish allowances for uncollectible reinsurance recoverable as appropriate.

 

Future Policy Benefits

 

We establish liabilities for amounts payable under insurance policies, including traditional life insurance and annuities. Generally, amounts are payable over an extended period of time. Liabilities for future policy benefits of traditional life insurance have been computed by using a net level premium method based upon estimates at the time of issue for investment yields, mortality and withdrawals. These estimates include provisions for experience less favorable than initially expected. Mortality assumptions are based on industry experience expressed as a percentage of standard mortality tables. Such liabilities are reviewed quarterly by an independent consulting actuary.

 

Income Taxes

 

Deferred tax assets are recorded based on the differences between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are investments, insurance reserves, and deferred acquisition costs. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. We have no uncertain tax positions that we believe are more-likely-than-not that the benefit will not to be realized.

 

Recognition of Revenues

 

Revenues on traditional life insurance products consist of direct and assumed premiums reported as earned when due.

 

Amounts received as payment for annuities are recognized as deposits to policyholder account balances and included in future insurance policy benefits. Revenues from these contracts are comprised of investment earnings of the deposits, which are recognized over the period of the contracts, and included in revenue. Deposits are shown as a financing activity in the Consolidated Statements of Cash Flows.

 

New Accounting Standards

 

A detailed discussion of new accounting standards is provided in the Notes to Consolidated Financial Statements beginning on p. 7 of this quarterly report.

 

 
15

 

 

Discussion of Consolidated Results of Operations

 

Revenues. Insurance revenues are primarily generated from premium revenues and investment income. Insurance revenues for the six months ended June 30, 2016 and 2015 are summarized in the table below.

 

   

Six Months Ended June 30,

 
   

2016

   

2015

 

Income:

 

(unaudited)

 

Premium income

  $ 3,230,836     $ 1,985,232  

Net investment income

    203,711       116,761  

Net realized (loss) gain on sale of securities

    10,764       102  

Other income

    35,590       5,148  

Total income

  $ 3,480,901     $ 2,107,243  

 

Insurance revenues for the three months ended June 30, 2016 and 2015 are summarized in the table below.

 

   

Three Months Ended June 30,

 
   

2016

   

2015

 

Income:

 

(unaudited)

 

Premium income

  $ 1,873,464     $ 962,398  

Net investment income

    112,450       65,872  

Net realized (loss) gain on sale of securities

    (74 )     102  

Other income

    22,185       2,995  

Total income

  $ 2,008,025     $ 1,031,367  

 

 

Premium revenue: Premium revenue for the first six months of 2016 was $3,230,836 compared to $1,985,232 in the first six months of 2015, an increase of $1,245,604. This growth is attributable to both an increase in direct written premiums due to our organic growth efforts and an increase in assumed premiums from our reinsurance treaty with ULIC.

 

Direct, assumed and ceded premiums for the six months ended June 30, 2016 and 2015 are summarized in the following table.

 

   

Six Months ended June 30,

 
   

2016

   

2015

 
   

(unaudited)

 

Direct

  $ 1,300,959     $ 781,867  

Assumed

    1,991,730       1,222,073  

Ceded

    (61,853 )     (18,708 )

Total

  $ 3,230,836     $ 1,985,232  

 

 

Premium revenue for the second quarter of 2016 was $1,873,464 compared to $962,398 in 2015, an increase of $911,066. This growth is attributable to both an increase in direct written premiums due to our organic growth efforts and an increase in assumed premiums from our reinsurance treaty with ULIC.

 

Direct, assumed and ceded premiums for the three months ended June 30, 2016 and 2015 are summarized in the table below.

 

 

   

Three Months ended June 30,

 
   

2016

   

2015

 
   

(unaudited)

 

Direct

  $ 717,343     $ 346,902  

Assumed

    1,191,001       626,390  

Ceded

    (34,880 )     (10,894 )

Total

  $ 1,873,464     $ 962,398  

 

 

The Company is pursuing new product and distribution opportunities to increase premium production.

 

 
16

 

 

Investment income, net of expenses: The components of net investment income for the six months ended June 30, 2016 and 2015 are as follows:

  

    Six months Ended June 30,  
   

2016

   

2015

 
   

(unaudited)

 

Fixed maturities

  $ 145,616     $ 86,404  

Equity securities

    78,441       45,189  

Cash and short term investments

    766       97  
      224,823       131,690  

Less investment expenses

    (21,112 )     (14,929 )
    $ 203,711     $ 116,761  

 

Net investment income for the first six months of 2016 was $203,711, compared to $116,761 in 2015, an increase of $86,950. This increase in investment income is primarily a result of increased invested assets as a result of our warrant exercise offering and premiums income.

 

The components of net investment income for the three months ended June 30, 2016 and 2015 are as follows:

 

   

Three Months Ended June 30,

 
   

2016

   

2015

 
   

(unaudited)

 

Fixed maturities

  $ 76,114     $ 44,662  

Equity securities

    46,965       28,775  

Cash and short term investments

    567       67  
      123,646       73,504  

Less investment expenses

    (11,196 )     (7,632 )
    $ 112,450     $ 65,872  

 

Net investment income for the second quarter of 2016 was $112,450, compared to $65,872 in 2015, an increase of $46,578. This increase in investment income is a result of increased invested assets as a result of our warrant exercise offering and premium income.

 

Net realized gains on investments: Net realized gains on investments for the six months ended June 30, 2016 were $10,764, compared to gains of $102 in 2015, an increase of $10,662. Realized gains and losses related to the sale of securities for the six months ended June 30, 2016 and 2015 are summarized as follows:

 

   

Six Months Ended June 30,

 
   

(unaudited)

 
   

2016

   

2015

 

Gross gains

  $ 12,830     $ 102  

Gross losses

    (2,066 )     -  

Net security (losses) gains

  $ 10,764     $ 102  

 

Net realized losses on investments for the second quarter of 2016 were $74 compared to gains of $102 in 2015.

 

Realized gains and losses related to the sale of securities for the three months ended June 30, 2016 and 2015 are summarized as follows:

 

   

Three Months Ended June 30,

 
   

(unaudited)

 
   

2016

   

2015

 

Gross gains

  $ 1,992     $ 102  

Gross losses

    (2,066 )     -  

Net security (losses) gains

  $ (74 )   $ 102  

 

Other income: Other income for the six months ended June 30, 2016 was $35,590 compared to $5,148 in 2015, an increase of $30,442. This increase is due to the growth of our third party administration business.

 

Other income for the second quarter of 2016 was $22,185 compared to $2,995 in 2015, an increase of $19,190. This increase is due to the growth of our third party administration business.

 

 
17

 

 

Expenses. Expenses for the six months ended June 30, 2016 and 2015 are summarized in the table below.

 

   

Six Months Ended June 30,

 
   

2016

   

2015

 

Expenses:

 

(unaudited)

 

Death claims

  $ 333,264     $ 197,788  

Policyholder benefits

    1,861,670       1,091,577  

Increase in policyholder reserves

    762,904       528,255  

Commissions, net of deferrals

    226,598       154,016  

Amortization of deferred acquisition costs

    89,099       58,328  

Salaries & benefits

    393,184       242,135  

Other operating expenses

    580,673       460,294  

Total expense

  $ 4,247,392     $ 2,732,393  

 

 

Expenses for the three months ended June 30, 2016 and 2015 are summarized in the table below.

 

   

Three Months Ended June 30,

 
   

2016

   

2015

 

Expenses:

 

(unaudited)

 

Death claims

  $ 216,737     $ 90,181  

Policyholder benefits

    1,139,525       587,138  

Increase in policyholder reserves

    403,352       263,181  

Commissions, net of deferrals

    118,383       64,874  

Amortization of deferred acquisition costs

    51,642       24,049  

Salaries & benefits

    204,817       111,490  

Other operating expenses

    313,343       165,540  

Total expense

  $ 2,447,799     $ 1,306,453  

 

 

Death and other benefits: Death benefits were $333,264 in the six months ended June 30, 2016 compared to $197,788 in 2015, an increase of $135,476. This increase is attributable to the growth of our in-force block of life insurance policies. The overwhelming majority of death claims paid from inception have been on pre-need policies. We expect these claims to grow as we continue to increase the size of our in-force pre-need business.

 

Death benefits were $216,737 for the three months ended June 30, 2016, compared to $90,181 for the same period in 2015, an increase of $126,556. This increase is attributable to the growth of our in-force block of life insurance policies. We expect these claims to grow as we continue to increase the size of our in-force life business.

 

Policyholder benefits: Policyholder benefits were $1,861,670 in the six months ended June 30, 2016 compared to $1,091,577 in 2015, an increase of $770,093. The primary driver of this increase is the growth of our assumed business and is more than offset by the increased premiums associated with this block of assumed policies.

 

Policyholder benefits were $1,139,525 during the second quarter of 2016, compared to $587,138 in the second quarter of 2015, an increase of $552,387. The primary driver of this increase is the growth of our assumed business and is more than offset by the increased premiums associated with this block of assumed policies.

 

Increase in policyholder reserves: Policyholder reserves increased $762,904 in the six months ended June 30, 2016, compared to $528,255 in 2015, an increase of $140,171. The increase in policyholder reserves reflects the growth in new business for 2016 as well as the maturation of in-force policies.

 

 
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Policyholder reserves increased by $403,352 in the second quarter of 2016, compared to $263,181 in the second quarter of 2015, an increase of $168,703. The increase in policyholder reserves reflects the growth in new business in 2016 as well as the maturation of in-force policies.

 

Commissions, net of deferrals: The Company pays commissions to the ceding company on a block of assumed policies. Commissions were $226,598 in the six months ended June 30, 2016, compared to $154,016 in 2015, an increase of $72,582. This increase is due to an increase in assumed premiums.

 

Commissions were $118,383 in the second quarter of 2016, compared to $64,874 in the second quarter of 2016, an increase of $53,509. This increase is due to an increase in assumed premiums.

 

Amortization of deferred acquisition costs: The amortization of deferred acquisition costs was $89,099 in the six months ended June 30, 2016, compared to $58,328 in 2015, an increase of $30,771. This increase is due to a corresponding increase in our deferred acquisition cost asset as a result of our growing block of in-force policies.

 

The amortization of deferred acquisition costs was $51,642 in the second quarter of 2016, compared to $24,049 in the second quarter of 2016, an increase of $27,593. This increase is due to a corresponding increase in our deferred acquisition cost asset as a result of our growing block of in-force policies.

 

Salaries and benefits: Salaries and benefits were $393,184 for the six months ended June 30, 2016, compared to $242,135 in 2015, an increase of $151,049. The increase is attributable to service team training, increased staffing in our service team to meet the increase volume of our group products, as well as the payment of incentive compensation. More than a third of the increased expense is attributable to staffing for our group products and increased health insurance costs.

 

Salaries and benefits were $204,817 in the second quarter of 2016, compared to $111,490 in the second quarter of 2015, an increase of $93,327. The increase is attributable to service team training, increased staffing in our service team to meet the increase volume of our group products, as well as the payment of incentive compensation.

 

Other expenses: Other operating expenses were $580,673 in the six months ended June 30, 2016, compared to $460,294, an increase of $120,379. This increase is driven by higher regulatory compliance costs associated with becoming a Securities and Exchange Commission registrant. We have had over $80,000 in increased regulatory costs, the bulk of which fall into this category.

 

Other operating expenses were $313,343 during the second quarter of 2016, compared to $165,540 in the second quarter of 2015, an increase of $147,803. This increase is primarily due to higher regulatory compliance costs associated with becoming a Securities and Exchange Commission registrant.

 

Net Loss: Our net loss was $766,491 in the six months ended June 30, 2016 compared to $625,150, an increase of $141,341. This increase is attributable to our continued investment in the long term success of the Company as well as our increased regulatory compliance costs. Our net loss per share decreased to $0.14 from $0.15 in 2015, basic and diluted.

 

Our net loss was $439,774 for the second quarter of 2016, compared to $275,086 for the same period in 2015, an increase of $164,688. This increase is attributable to our continued investment in the long term success of the Company as well as our increased regulatory compliance costs. Our net loss per share was $0.08 per share, basic and diluted, compared to $0.06 per share in the second quarter of 2015.

 

 
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Discussion of Consolidated Balance Sheet

 

Assets. Assets have increased to $18,390,582 as of June 30, 2016, an increase of $3,588,384 from December 31, 2015. This is primarily the result of the growth of our available for sale assets and cash and cash equivalents.

 

Available for sale fixed maturity securities: As of June 30, 2016, we had available for sale fixed maturity assets of $9,755,263, an increase of $1,624,144 from the December 31, 2015 balance of $8,131,119. This growth is driven by our premium income and our warrant exercise offering.

 

Available for sale equity securities: As of June 30, 2016, we had available for sale equity assets of $4,417,387, an increase of $813,119 from the December 31, 2015 balance of $3,604,268. This growth is driven by our premium income and our