NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND BUSINESS
ORGANIZATION AND NATURE OF BUSINESS
Jacobs Financial Group, Inc. (the "Company" or "JFG"), formerly NELX,
Inc., was incorporated in Kansas on March 25, 1983. In 2001, the
Company acquired all the outstanding stock of two corporations located
in Charleston, West Virginia: Jacobs & Company ("Jacobs") and FS
Investments, Inc. ("FSI"). Jacobs is a registered investment advisory
firm that derives its revenue from asset-based investment advisory
fees. FSI, through its wholly-owned subsidiary Triangle Surety Agency,
Inc. ("Triangle"), is engaged in the business of placing surety bonds
with insurance companies for clients engaged in regulated industries,
such as the extraction of coal, oil and gas. FSI receives commission
income from the placement of these bonds and is licensed in ten states
primarily in the eastern United States. On December 30, 2005, the
Company acquired all of the outstanding stock of West Virginia Fire &
Casualty Company ("WVFCC"), an insurance company licensed to engage in
business in West Virginia, Ohio and Indiana. The acquisition of WVFCC
consisted of the purchase of marketable investments and insurance
licenses and did not include any existing policies or customer base as
the insurance lines of business offered by WVFCC were not insurance
lines that the Company intended to pursue. Following the acquisition,
the name of WVFCC was changed to First Surety Corporation ("FSC"). FSC
receives insurance premium income in connection with the issuance of
surety bonds. The Company and its subsidiaries are subject to the
business risks inherent in the financial services industry.
LIQUIDITY AND GOING CONCERN
These financial statements are presented on the basis that the Company
is a going concern. Going concern contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business over a reasonable length of time. Additionally, the Company
has insufficient liquidity and capitalization, is in default with
respect to certain loan and preferred stock agreements, and has
suffered recurring losses from operations. Losses are expected to
continue until FSC develops a more substantial book of business. While
improvement is anticipated as the Company's business plan is
implemented, other conditions, such as restrictions on the use of FSC's
assets (See Note C), and the Company's significant deficiency in
working capital and stockholders' equity raise substantial doubt about
the Company's ability to continue as a going concern.
Management intends to improve cash flow through the implementation of
its business plan. Additionally, management continues to seek to raise
additional funds for operations through private placements of stock,
other long-term or permanent financing, or short-term borrowings.
However, the Company cannot be certain that it will be able to continue
to obtain adequate funding in order to reasonably predict whether it
will be able to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Jacobs
Financial Group, Inc. and its wholly owned subsidiaries, after the
elimination of intercompany transactions.
F-10
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
USE OF ESTIMATES
Preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities. Significant areas requiring the use of management
estimates are loss reserves, stock options, valuation of investments,
and the valuation of deferred tax assets. Actual results inevitably
will differ from those estimates, and such differences may be material
to the financial statements.
REVENUE RECOGNITION
Fees for investment advisory services are based on an agreed percentage
of the value of client assets under management and are accrued monthly
based on the market value of client assets.
The Company accounts for its surety bond issuances as short duration
contracts. Surety premiums are recorded as receivables when due and are
earned pro rata over the term of the policies of generally one year,
subject to annual renewal. The reserve for unearned premiums represents
the portion of premiums written relating to the unexpired terms of
coverage. The reserve for unearned premium is determined using the
monthly pro rata method. Advance premiums represent renewal premiums
paid in advance of the effective renewal date.
Agency commissions for surety bond services are based on a percentage
of premiums charged for bonds placed with insurance companies, and are
recorded upon issuance or effective renewal date of the bonds. No
significant continuing services subsequent to the issuance or renewal
of surety bonds are required.
Policy acquisition costs include costs that vary with and are primarily
related to the acquisition of new business. Such costs generally
include commissions, underwriting expenses, and premium taxes and are
deferred and amortized over the period in which the related premiums
are earned. The deferred policy acquisition cost assets are reviewed
for recoverability based on the profitability of the underlying surety
policy. Investment income is not anticipated in the recoverability of
deferred policy acquisition costs.
INVESTMENTS
Debt securities are designated at purchase as held-to-maturity, trading
or available for sale. Held-to-maturity debt securities are carried at
amortized cost where the Company has the ability and intent to hold
these securities until maturity. Premiums and discounts arising from
the purchase of debt securities are treated as yield adjustments over
the estimated lives or call date, if applicable.
Debt and equity securities that are bought and held principally for
sale in the near future are classified as trading securities and are
carried at current fair values, with changes in fair value being
recorded in current operations.
F-11
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt and equity securities that the Company may not have a positive
intent to hold until maturity and not classified as trading, are
considered to be available for sale and carried at fair value.
Management has determined it may dispose of securities prior to their
scheduled maturity due to changes in interest rates, prepayments, tax
and credit considerations, liquidity or regulatory capital
requirements, or other similar factors. As a result, the Company
classifies all of its fixed income securities (bonds) and equity
securities as available-for-sale. These securities are reported at fair
value, with unrealized gains and losses, net of deferred income taxes,
reported in stockholders' equity as a separate component of accumulated
other comprehensive income.
An investment is considered impaired when its fair value investment is
less than its cost or amortized cost, as applicable. When an investment
is impaired, a determination is made as to whether the impairment is
other than temporary ("OTTI").
Factors considered in identifying OTTI include: 1) for debt securities,
whether the Company intends to sell the investment or whether it is
more likely than not that the Company will be required to sell the
security prior to the anticipated recovery in value; 2) the likelihood
of the recoverability of principal and interest for debt securities
(i.e., whether there is a credit loss) or cost for equity securities;
3) the length of time and extent to which the fair value has been less
than amortized cost for debt securities or cost for equity securities;
and 4) the financial condition, near-term and long-term prospects for
the issuer, including the relevant industry conditions and trends, and
implications of rating agency actions and offering prices.
Short-term investments consist primarily of debt securities having
maturities of one year or less at date of purchase, money-market
investment funds and other similar investments that have immediate
availability.
Interest income with respect to fixed maturity securities is accrued as
earned. Dividend income is generally recognized when receivable.
Realized gains and losses are determined by specific identification of
the security sold.
DERIVATIVES
The Company uses derivatives in the form of covered call options sold
to generate additional income and provide limited downside protection
in the event of a market correction.
These transactions expose the Company to potential market risk for
which the Company receives a premium up front. The market risk relates
to the requirement to deliver the underlying security to the purchaser
of the call within a definite time at an agreed market price regardless
of the then current market price of the security. As a result the
Company takes the risk that it may be required to sell the security at
the strike price, which could be a price less than the then market
price. Should the security decline in market price over the holding
F-12
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
period of the call option, the Company realizes the option premium
received as income and the Company lessens or mitigates this risk which
may be eliminated by a closing transaction for the covered call and
sale of the underlying security.
The Company invests in large capitalized US securities traded on major
US exchanges and writes standardized covered calls only against these
positions (covered calls), which are openly traded on major US
exchanges. The use of such underlying securities and standardized calls
lessens the credit risk to the furthest extent possible.
The Company is not exposed to significant cash requirements through the
use of covered calls in that it sells a call for a premium and may use
these proceeds to enter a closing transaction for the call at a later
date.
ALLOWANCE FOR UNCOLLECTIBLE PREMIUM AND OTHER RECEIVABLES
The majority of the Company's fee revenue is generated by services
provided to companies and individuals throughout the Eastern United
States. Management evaluates the need for a reserve for the amount of
these receivables that may be uncollectible, based on historical
collection activity adjusted for current conditions. Premium and other
receivables are charged-off when deemed uncollectible. Based on this
evaluation, management believes that substantially all accounts
receivable are collectible, and therefore has not established an
allowance for estimated uncollectible accounts.
IMPAIRMENT
The Company evaluates long-lived assets for impairment annually, or
whenever events or changes in circumstances indicate that the assets
may not be recoverable. The impairment is measured by discounting
estimated future cash flows expected to be generated, and comparing
this amount to the carrying value of the asset. Cash flows are
calculated utilizing forecasts and projections and estimated lives of
the assets being analyzed. Should actual results differ from those
forecasted and projected, The Company may be subject to future
impairment charges related to these long-lived assets.
FURNITURE AND EQUIPMENT
Furniture and equipment is recorded at cost. Maintenance and repairs
are charged to operations when incurred. When property and equipment
are sold or disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations. The cost of property and equipment is depreciated over the
estimated useful lives of the related assets, ranging from three to
seven years, using the straight-line and double-declining balance
methods, which approximates estimated economic depreciation.
RESERVE FOR LOSSES AND LOSS EXPENSES
Losses and loss adjustment expenses represent management's best
estimate of the ultimate net cost of all reported and unreported losses
incurred. Reserves for unpaid losses and loss adjustment expenses are
estimated using industry averages, however, will include individual
case-basis valuations in the event if claims are received. These
estimates and methods of establishing reserves are continually reviewed
and updated.
F-13
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK-BASED COMPENSATION
The fair value of stock options is estimated at the grant date using
the Black Scholes Option Pricing Model. This model requires the input
of a number of assumptions, including expected volatility and dividend
yields, expected stock price, risk-free interest rates, and an expected
life of the options. Although the assumptions used reflect management's
best estimate, they involve inherent uncertainties based on market
conditions generally outside the control of the Company.
INCOME TAXES
The Company currently has net operating loss ("NOL") carry-forwards
that can be utilized to offset future income for federal and state tax
purposes. These NOLs generate a significant deferred tax asset.
However, the Company has recorded a valuation allowance against this
deferred tax asset as it has determined that it is more likely than not
that it will not be able to fully utilize the NOLs. Should assumptions
regarding the utilization of these NOLs change, the Company may reduce
some or all of this valuation allowance, which would result in the
recording of a deferred income tax benefit.
The Company prescribes a more-likely-than-not measurement methodology
to reflect the financial statement impact of uncertain tax positions
taken or expected to be taken in a tax return. If taxing authorities
were to disallow any tax positions taken by the Company, the additional
income taxes, if any, would be imposed on the stockholders rather than
the Company.
Interest and penalties associated with tax positions are recorded in
the period assessed as general and administrative expenses. However, no
interest or penalties have been assessed as of May 31, 2013 or 2012.
The Company's tax returns subject to examination by tax authorities
include May 31, 2011 through the current period for state and federal
tax reporting purposes.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share of common stock are computed using the
weighted average number of shares outstanding during each period.
Diluted earnings per share are computed on the basis of the average
number of common shares outstanding plus the dilutive effect of
convertible debt, stock options and warrants. In periods of net loss,
there are no diluted earnings per share since the result would be
anti-dilutive.
RECLASSIFICATIONS
Certain amounts in the 2012 Consolidated Financial Statements have been
reclassified to be consistent with the presentation in the Consolidated
Financial Statements as of May 31, 2013 and for the year then ended.
These reclassifications had no impact on previously reported net
income, cash flows from operations or changes in shareholders' equity.
F-14
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - NEWLY ADOPTED AND RECENT ACCOUNTING PRONOUNCEMENTS
In December 2011, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update 2011-11 (ASU 2011-11), DISCLOSURES
ABOUT OFFSETTING ASSETS AND LIABILITIES. The amendments in this Update
will enhance disclosures required by U.S. GAAP by requiring improved
information about financial instruments and derivative instruments that
are either (1) offset in accordance with either Section 210-20-45 or
Section 815-10-45 or (2) subject to an enforceable master netting
arrangement or similar agreement. The amendments are effective for
fiscal years beginning after January 1, 2013 and for interim periods
within those fiscal years. The amendments of ASU 2011-11 did not have a
material impact on the Company's consolidated financial statements.
In January 2013, the FASB issued Accounting Standards Update 2013-01
(ASU 2013-01), CLARIFYING THE SCOPE OF DISCLOSURES ABOUT OFFSETTING
ASSETS AND LIABILITIES. The main objective in developing this Update is
to address implementation issues about the scope of Accounting
Standards Update No. 2011-11, Balance Sheet Topic 210: Disclosures
about Offsetting Assets and Liabilities. The amendments are effective
for fiscal years beginning on or after January 1, 2013, and interim
periods within those annual periods. The amendments of ASU 2013-01 did
not have a material impact on the Company's consolidated financial
statements.
In February 2013, the FASB issued Accounting Standards Update 2013-02
(ASU 2013-02), REPORTING OF AMOUNTS RECLASSIFIED OUT OF ACCUMULATED
OTHER COMPREHENSIVE INCOME. The objective of this Update is to improve
the reporting of reclassifications out of accumulated other
comprehensive income. The amendments in this Update seek to attain that
objective by requiring an entity to report the effect of significant
reclassifications out of accumulated other comprehensive income on the
respective line items in net income if the amount being reclassified is
required under U.S. GAAP to be reclassified in its entirety to net
income. For other amounts that are not required under U.S. GAAP to be
reclassified in their entirety to net income in the same reporting
period, an entity is required to cross-reference other disclosures
required under U.S. GAAP that provide additional detail about those
amounts. The amendments are effective prospectively for annual
reporting periods beginning after December 15, 2012 and interim periods
within those annual periods. The amendments of ASU 2013-02 did not have
a material impact on the Company's consolidated financial statements.
In July 2013, the FASB issued Accounting Standards Update 2013-11 (ASU
2013-11), PRESENTATION OF AN UNRECOGNIZED TAX BENEFIT WHEN A NET
OPERATING LOSS CARRYFORWARD, A SIMILAR TAX LOSS, OR A TAX CREDIT
CARRYFORWARD EXISTS A CONSENSUS OF THE FASB EMERGING ISSUES TASK FORCE.
The objective of this Update is to eliminate the diversities that exist
in financial statement presentation. The amendments aim at attaining
this objective by giving explicit guidance on the financial statement
presentation of an unrecognized tax benefit when a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward exists.
The amendments in this Update are effective for fiscal years, and
interim periods within those years, beginning after December 15, 2013.
The amendments of ASU 2013-11 did not have a material impact on the
Company's consolidated financial statements.
F-15
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 2014, the FASB issued Accounting Standards Update 2014-09 (ASU
2014-09), REVENUE FROM CONTRACTS WITH CUSTOMERS. The guidance in this
Update affects any entity that either enters into contracts with
customers to transfer goods or services or enters into contracts for
the transfer of nonfinancial assets unless those contracts are within
the scope of other standards (for example, insurance contracts or lease
contracts). The standard's core principle is that a company will
recognize revenue when it transfers promised goods or services to
customers in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods or services.
In doing so, companies will need to use more judgment and make more
estimates than under current guidance. This may include identifying
performance obligations in the contract, estimating the amount of
variable consideration to include in the transaction price and
allocating the transaction price to each separate performance
obligation. The amendments in this Update are effective for annual
reporting periods beginning after December 15, 2016, including interim
periods within that reporting period. Early adoption is not permitted.
Companies have the option of using either a full or modified
retrospective approach in applying this standard. The Company is in the
process of assessing the impact of ASU 2014-09 on its consolidated
financial statements.
In August 2014, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update No. 2014-15, PRESENTATION OF
FINANCIAL STATEMENTS-GOING CONCERN (SUBTOPIC 205-40) (ASU 2014-15). ASU
2014-15 is intended to define management's responsibility to evaluate
whether there is substantial doubt about an organization's ability to
continue as a going concern and to provide related footnote
disclosures. This guidance is effective for us for the annual period
ending May 31, 2017 and interim and annual periods thereafter. We do
not expect the adoption of this standard to have a material impact on
our consolidated financial position, results of operations and cash
flows.
Management has assessed the potential impact of recently issued, but
not yet effective, accounting standards and determined that the
provisions are either not applicable to the Company, or are not
anticipated to have a material impact on the consolidated financial
statements.
NOTE C - INVESTMENTS
The Company held the following investments, by security type, that have
been classified as available-for-sale and carried at fair value at May
31, 2013:
Gross Gross
Unrealized Unrealized
Amortized Cost Gains Losses Fair Value
-------------- ------------ ----------- -----------
State and municipal $ 1,760,341 $ 5,293 $ 36,627 $ 1,729,007
securities
Equity securities 474,311 52,190 21,979 504,522
Derivatives (18,603) (31,442) (162) (49,883)
Foreign Obligations 200,750 - 6,913 193,837
Mortgage Backed Securities 3,413,161 145,390 9,279 3,549,272
-------------- ------------ ----------- -----------
$ 5,829,960 $ 171,431 $ 74,636 $ 5,926,755
============== ============ =========== ===========
|
F-16
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company held the following investments, by security type, that were
classified as available-for-sale and carried at fair value at May 31,
2012:
Gross Gross
Unrealized Unrealized
Amortized Cost Gains Losses Fair Value
-------------- ----------- ----------- ------------
State and municipal $ 2,077,399 $ 16,051 $ 6,110 $ 2,087,340
securities
Equity securities 533,669 15,176 52,377 496,468
Derivatives (14,549) (2,344) (4,699) (12,194)
Foreign Obligations 205,247 - 9,997 195,250
Mortgage Backed Securities 3,632,782 185,140 1,864 3,816,058
-------------- ----------- ----------- ------------
$ 6,434,548 $ 214,023 $ 65,649 $ 6,582,922
============== =========== =========== ============
|
There are no securities classified as held to maturity at May 31, 2013
or May 31, 2012.
Invested assets are exposed to various risks, such as interest rate,
market and credit risks. Due to the level of risk associated with
certain of these invested assets and the level of uncertainty related
to changes in the value of these assets, it is possible that changes in
risks in the near term may significantly affect the amounts reported in
the Consolidated Condensed Balance Sheets and Statements of Operations.
Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date. The Company uses the following
fair value hierarchy in selecting inputs, with the highest priority
given to Level 1, as these are the most transparent or reliable:
o Level 1 - Quoted prices for identical instruments in active
markets.
o Level 2 - Quoted prices for similar instruments in active
markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations in
which all significant inputs are observable in active markets.
o Level 3 - Valuations derived from valuation techniques in
which one or more significant inputs are unobservable.
Fair values are provided by the Company's independent investment
custodians that utilize third-party quotation services for the
valuation of the fixed-income investment securities and money-market
funds held. The Company's investment custodians are large money-center
banks. The Company's equity investment is valued using quoted market
prices.
The following section describes the valuation methodologies used to
measure different financial instruments at fair value, including an
indication of the level in the fair value hierarchy in which the
instrument is generally classified.
F-17
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIXED INCOME SECURITIES
Securities valued using Level 1 inputs include highly liquid government
bonds for which quoted market prices are available. Securities using
Level 2 inputs are valued using pricing for similar securities,
recently executed transactions, cash flow models with yield curves and
other pricing models utilizing observable inputs. Most fixed income
securities are valued using Level 2 inputs. Level 2 includes corporate
bonds, municipal bonds, asset-backed securities and mortgage
pass-through securities.
EQUITY SECURITIES
Level 1 includes publicly traded securities valued using quoted market
prices.
SHORT-TERM INVESTMENTS
The valuation of securities that are actively traded or have quoted
prices are classified as Level 1. These securities include money market
funds and U.S. Treasury bills. Level 2 includes commercial paper, for
which all significant inputs are observable.
ASSETS MEASURED AT FAIR VALUE ON A RECURRING BASIS ARE SUMMARIZED
BELOW:
May 31, 2013
------------------------------------------------------------------
-------------------------------------------------- ---------------
Fair Value Measurements Using
Assets At
Level 1 Level 2 Level 3 Fair Value
---------------- ---------------- ---------------- ---------------
Assets:
Fixed income securities at fair value $ - $ 5,472,116 $ - $ 5,472,116
Equity securities at fair value (includes
derivatives) 454,639 - - 454,639
Short-term investments at fair value 1,255,234 - - 1,255,234
---------------- ---------------- ---------------- ---------------
Total Assets $ 1,709,873 $ 5,472,116 $ - $ 7,181,989
================ ================ ================ ===============
|
May 31, 2012
------------------------------------------------------------------
-------------------------------------------------- ---------------
Fair Value Measurements Using
Assets At
Level 1 Level 2 Level 3 Fair Value
---------------- ---------------- ---------------- ---------------
Assets:
Fixed income securities at fair value $ - $ 6,098,648 $ - $ 6,098,648
Equity securities at fair value (includes
derivatives) 484,274 - - 484,274
Short-term investments at fair value 991,875 - - 991,875
---------------- ---------------- ---------------- ---------------
Total Assets $ 1,476,149 $ 6,098,648 $ - $ 7,574,797
================ ================ ================ ===============
|
The Company had no assets or liabilities measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) at
either May 31, 2013 or at May 31, 2012.
At May 31, 2013, the Company's insurance subsidiary had securities and
short term investment with a fair value of $1,068,225 on deposit with
the State insurance department to satisfy regulatory requirements. In
connection with regulatory approval of the Company's acquisition of its
insurance subsidiary, certain restrictions were imposed on the ability
of the Company to withdraw funds from FSC without prior approval of the
F-18
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
state Insurance Commissioner. Accordingly, investments and cash in the
amount of $7,495,538 and $7,833,825 as of May 31, 2013 and 2012,
respectively, are restricted to the use of FSC.
Principal repayments on U.S. government agency mortgage-backed
securities held by the Company as of May 31, 2013 are estimated as
follows:
Amortized Fair Market
Cost Value
--------------- ---------------
Due in one year or less $ 337,348 $ 351,522
Due after one year through five years 209,720 219,830
Due after five years through ten years 130,678 137,147
Due after ten years 2,735,415 2,840,773
--------------- ---------------
$ 3,413,161 $ 3,549,272
=============== ===============
|
Estimated repayments are forecast based on varying prepayment speeds
for each particular security held assuming that interest rates remain
constant. Expected repayments will differ from actual repayments
because borrowers of the underlying mortgages have a right to prepay
obligations.
An analysis of net investment income follows:
2013 2012
------------------- ---------------------
Bonds - fixed maturities $ 85,761 $ 76,424
Mortgage-backed securities
117,696 190,949
Equity investments 15,929 11,960
Short-term investments 88 77
Other investment income 20,175 -
------------------- ---------------------
Total investment income 239,649 279,410
------------------- ---------------------
Investment expense 9,276 -
------------------- ---------------------
Net investment income $ 230,373 $ 279,410
=================== =====================
|
The increase (decrease) in unrealized appreciation of investments were
as follows:
2013 2012
--------------- ---------------
Bonds-fixed maturities $ (58,185) $ 26,899
Mortgage-backed securities (47,164) (23,802)
Equity securities 33,776 (37,393)
--------------- ---------------
Increase (decrease) in unrealized
appreciation $ (71,573) $ (34,296)
=============== ===============
|
Gains and losses are calculated based on sales proceeds received less
the cost of the security sold, which is determined by specific
identification for each investment. The gross gains and gross losses
realized on available-for-sale securities were as follows:
F-19
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gross Gross
Gross Realized Realized
Proceeds Gains Losses
------------ ----------- ------------
2013
Bonds-fixed maturities $ 1,487,611 $ 22,940 $ (7,512)
Mortgage-backed securities 28,581 - (1,627)
Equity securities 381,580 14,833 (5,054)
Derivatives (equity securities) 72,967 27,695 (8,036)
------------ ----------- ------------
Total $ 1,970,739 $ 65,468 $ (22,229)
============ =========== ============
2012
Bonds-fixed maturities $ 688,281 $ 26,439 $ -
Mortgage-backed securities 874,051 50,399 -
Equity securities 112,876 2,168 (2,976)
Derivatives (equity securities) 78,578 26,676 (9,327)
------------ ----------- ------------
Total $ 1,753,786 $ 105,682 $ (12,303)
============ =========== ============
|
The following table summarizes the gross unrealized losses and fair
value on investment securities aggregated by major investment category
and length of time that individual securities have been in a continuous
loss position at May 31, 2013 and May 31, 2012.
Less than 12 Months 12 Months or More Total
--------------------------------- ------------------------------- --------------------------------
Cost Unrealized Cost Unrealized Fair Unrealized
(a) Losses (a) Losses Value Losses
---------------- ---------------- --------------- --------------- --------------- ----------------
2013
Equity securities $ 71,398 $ 1,665 $ 89,751 $ 20,314 $ 139,171 $ 21,979
Bonds- Fixed Maturities 856,467 20,752 836,301 22,788 1,649,229 43,540
Mortgage-backed
securities 488,878 5,440 142,854 3,838 622,454 9,278
---------------- ---------------- --------------- --------------- --------------- ----------------
Total $ 1,416,743 $ 27,857 $ 1,068,906 $ 46,940 $ 2,410,854 $ 74,797
================ ================ =============== =============== =============== ================
2012
Equity securities $ 266,036 $ 36,909 $ 81,169 $ 15,468 $ 294,828 $ 52,377
Bonds- Fixed Maturities 888,501 13,734 523,068 2,373 1,395,462 16,107
Mortgage-backed
securities 272,548 1,362 38,189 503 308,872 1,865
---------------- ---------------- --------------- --------------- --------------- ----------------
Total $ 1,427,085 $ 52,005 $ 642,426 $ 18,344 $ 1,999,162 $ 70,349
================ ================ =============== =============== =============== ================
|
(a) For bonds-fixed maturities and mortgage-backed securities,
represents amortized costs.
F-20
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of May 31, 2013, the Company held nine mortgage-backed securities
with gross unrealized losses of $9,278, three of which have been in a
continuous loss position for more than 12 months. These securities
consist of fixed-rate securities issued by Government National Mortgage
Association (GNMA) that are sensitive to movements in market interest
rates.
As of May 31, 2013, the Company held eight fixed maturity bonds with
gross unrealized losses of $43,540, three of which has been in a
continuous loss position for more than 12 months.
As of May 31, 2013, the Company held five equity security investments
with gross unrealized losses of $21,979, three of which has been in a
continuous loss position for more than 12 months. These securities
consist of common stock whose fair value is sensitive to movements in
market interest rates.
NOTE D-DEFERRED POLICY ACQUISITION COSTS
The following reflects the policy acquisition costs deferred for
amortization against future income and the related amortization charged
to operations.
2013 2012
-------------------------------------- ------------- -------------
Balance at beginning of year $ 167,010 $ 190,711
-------------------------------------- ------------- -------------
Acquisition costs deferred 239,074 287,684
-------------------------------------- ------------- -------------
Amortization charged to operations (267,587) (311,385)
-------------------------------------- ------------- -------------
Total $ 138,497 $ 167,010
-------------------------------------- ------------- -------------
|
NOTE E - OTHER ASSETS
Included in other assets as of May 31, 2013 and May 31, 2012 are
$99,187 and $96,370 of prepaid expenses and deposits. The balance on
May 31, 2013 includes an $80,000 deposit for legal fees.
NOTE F - INTANGIBLES
As the result of the acquisition of FSC on December 30, 2005, in
exchange for the purchase price of $2,900,000, the Company received
cash and investments held by FSC with a fair value of $2,750,000, with
the difference of $150,000 being attributed to the property and
casualty licenses of FSC in the states of West Virginia, Ohio and
Indiana. Such licenses have indefinite lives and are evaluated
annually, or more frequently if circumstances indicate that a possible
impairment has occurred, for recoverability and possible impairment
loss. No impairment has been recorded in fiscal years ended May 31,
2013 and 2012.
NOTE G - RESERVE FOR LOSSES AND LOSS EXPENSE
Reserves for unpaid losses and loss adjustment expenses are estimated
based primarily on management's judgment as the Company has not
incurred a loss since its inception and available industry data is
extremely limited. In the event of the Company receiving a claim it
will use individual case basis estimates including all estimated future
expenses to settle such claims. As of May 31, 2013, the Company's
insurance subsidiary, FSC, is only licensed to write surety in West
Virginia and Ohio and has focused its primary efforts towards coal
permit bonds while also providing other miscellaneous surety bonds,
most of which are partially collateralized by investment accounts that
F-21
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
are managed by Jacobs & Company. Reclamation of land that has been
disturbed by mining operations is highly regulated by federal and state
agencies and the required bonds are generally long-term in nature with
mining operations and reclamation work conducted in unison as the
property is being mined. Additionally, no two principals or properties
are alike due to varied company structures and unique geography and
geology of each site. In underwriting such bonds, management develops,
through consultation with professionals experienced in the specific
field of work, estimates of costs to reclaim the properties subject of
the permit(s) in accordance with those mining permit(s), in addition to
other underwriting and financial risk considerations. FSC requires the
principal to provide cash, or other acceptable collateral such as
irrevocable letters of credit, in amounts determined through the
underwriting process to reclaim the disturbed land and thus mitigate
the exposure to significant loss. FSC maintains reinsurance agreement
with various syndicates at Lloyd's of London. The reinsurance agreement
is an excess of loss contract that protects FSC against losses up to
certain limits over stipulated amounts. Such cash is invested in
investment collateral accounts managed by Jacobs utilizing investment
strategies consistent with the state code governing investments of an
insurance company. Inspections of mining activity and reclamation work
are performed on a regular basis with initial costs estimates being
updated periodically. Should the principal default in the obligation to
reclaim the property in accordance with the mining permit, FSC would
then use the funds held in the collateral account to reclaim the
property or would be required to forfeit the face amount of the bond to
the agency to which the bond is issued. Losses can occur if the costs
of reclamation exceed estimates obtained at the time the bond was
underwritten or upon subsequent re-evaluations, if sufficient
collateral is not obtained and increased if necessary, or if collateral
held has experienced a significant deterioration in value. FSC has
experienced no claims for losses as of May 31, 2013 and thus provisions
for losses and loss adjustment expense have been based on management's
experience adjusted for other factors unique to the Company's approach,
and in consultation with consulting actuaries experienced in the surety
field.
At May 31, 2013 and May 31, 2012, the reserve for losses and loss
expenses consisted of:
2013 2012
--------------- -------------
Balance at beginning of year
$ 1,026,489 $ 815,512
Incurred policy losses-current year 181,414 210,977
--------------- -------------
Balance at end of year $ 1,207,903 $ 1,026,489
=============== =============
|
F-22
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - NOTES PAYABLE
At May 31, 2013 and 2012, the Company had the following unsecured notes
payable to individuals:
2013 2012
--------------- ---------------
Unsecured demand notes payable to individuals and
others; interest rate fixed @ 10% ($75,000 to
related party) $ 1,227,482 $ 1,589,000
Unsecured demand notes payable to individuals and
others; interest rate fixed @ 12% 15,000 15,000
Secured demand note payable to individuals;
interest rate fixed @ 14%; secured by accounts
receivable for investment advisory fees 185,000 62,000
Secured demand note payable to individuals;
interest rate fixed @ 10%; secured by accounts
receivable for investment advisory fees 95,000 105,000
Unsecured short-term advances to principal
shareholder and chief executive officer; interest
rate fixed @ 12% (Also See Note T -
Related Party Transactions) (175,312) (57,046)
Unsecured note(s)payable to individual(s) under
bridge- financing arrangements described below
($360,000 to related party) 3,500,000 3,500,000
--------------- ---------------
Total $ 4,847,170 $ 5,213,954
=============== ===============
|
In accordance with the terms of the first round bridge-financing of
$2.5 million on March 10, 2008, the holders of such notes were paid
accrued interest-to date and issued 5.00% of the Company's common
shares. Holders of the second round of bridge-financing notes of $1.0
million received 2.00% of the Company's common shares. Upon retirement
of the notes subsequent to consummation of a qualified equity offering,
the Company shall issue to the holders of the bridge financing notes
additional Company common stock that when added to the stock initially
issued to the holders of the notes, will equal the note holders' pro
rata share of the applicable percentage of the outstanding common stock
of the Company as follows: If the qualified financing consists of $50
million or more, the holders of such notes will receive 28% of the
common stock of the Company that would otherwise be retained by the
holders of the Company's common shares immediately prior to the
F-23
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
financing; if the qualified financing is for an amount less than $50
million, the percentage will be reduced on a sliding scale to a
fraction of 28% of the amount retained by the holders of the Company's
common shares (where the numerator is the amount of financing and the
denominator is $50 million).).This featured was analyzed and determined
to be an embedded derivative, but the value was considered to be
immaterial.
Beginning September 10, 2008, because a qualified financing had not
been completed, the Company became required under the terms of the
bridge financing to issue 2.80% of the Company's outstanding common
shares and shall issue 2.80% of the Company's outstanding common shares
upon each six-month anniversary date thereof until retirement of the
notes. This feature was analyzed and determined to be an embedded
derivative, but the value was considered to be immaterial. The
following table summarizes the common shares issued to those note
holders as a result incurring these penalties.
Date of Issuance Shares Issued
-------------------- --------------
September 10, 2008 4,870,449
March 10, 2009 5,010,640
September 10, 2009 5,354,642
March 10, 2010 6,005,925
September 10, 2010 6,213,285
March 10, 2011 6,738,900
September 10, 2011 7,043,710
March 10, 2012 7,430,017
September 10, 2012 8,573,594
March 10, 2013 8,947,444
--------------
66,188,606
==============
|
Pursuant to the terms of the Promissory Notes, the first two of 20
equal quarterly installments of principal and interest payable
thereunder were to have been paid on December 10, 2008 and March 10,
2009 (the "INITIAL AMORTIZATION PAYMENTS"). As the result of upheavals
and dislocations in the capital markets, the Company was unable to
either refinance the indebtedness evidenced by the Promissory Notes or
make the Initial Amortization Payments to the Holders when due; and an
Event of Default (as defined in the Promissory Notes) occurred under
the Promissory Notes as a result of the Company's failure to pay the
Initial Amortization Payments within 14 days after same became due and
payable.
On June 5, 2009 the Company entered into an agreement with the bridge
lenders to forbear from exercising their rights and remedies arising
from the Acknowledged Events of Default. The Original forbearance was
amended October 13, 2009. As consideration for the forbearance, the
Company issued 5,171,993 shares of Common stock, and pledged the stock
of an inactive subsidiary of the Company, Crystal Mountain Water (CMW),
as security for repayment of the loans. The original repayment schedule
called for quarterly payments of $224,515. The Holders agreed that
under the forbearance the Company may satisfy its obligation by
increasing the quarterly payments by $67,185, (to a total of $291,700)
for eight consecutive quarters beginning September 10, 2009 to satisfy
the arrearage. In addition, the interest rate was increased to 17.00%.
Although the Company failed to make the payment that was due September
10, 2009 and the payments that were due in the ensuing quarters,
F-24
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
management has remained in close contact with the bridge lenders,
providing reports regarding its efforts to refinance or otherwise repay
the bridge loans.
In anticipation of a proposed financing and as a condition thereof, the
Company and each of the bridge lenders entered into a Loan Modification
Agreement dated February 25, 2012 which provided for modification of
the Promissory Notes, including an extension of the term of the
Promissory Notes, and Subscription Agreements in exchange for a partial
cash payment to each bridge lender. To date, the proposed financing has
not closed, and the Company has been unable to remit the partial
payment. On August 10, 2012, the Company entered into an agreement with
the bridge lenders, pursuant to which the bridge lenders formally
agreed to forbear from exercising their rights and remedies arising
from the accumulated acknowledged events of default with respect to the
bridge loans until such date. As consideration for this forbearance,
the Company entered into an Amended and Restated General Hypothecation
and Pledge Agreement dated August 9, 2012 (the "August 2012 Pledge"),
but effective September 23, 2011, granting to the bridge lenders as
security for the repayment of the loans a lien and security interest in
all of the Company's shares of capital stock of First Surety
Corporation. Under the August 2012 Pledge, the bridge lenders
acknowledge that the effectiveness of certain of the rights and
remedies provided by such agreement may be subject to prior approval by
the Office of the Commissioner of Insurance for the State of West
Virginia. To date, none of the bridge lenders has elected to pursue
legal remedies under the Promissory Notes or the August 2012 Pledge.
Scheduled maturities are as follows:
2013
--------------
Fiscal year 2013-2014 (including demand notes) $ 4,701,755
Fiscal year 2014-2015 145,415
Total $ 4,847,170
==============
|
NOTE I - OTHER LIABILITIES
In the year ended May 31, 2012, the Company, upon advice of legal
counsel, removed certain dormant accounts payable in the aggregate
amount of $150,604, based on the vendor no longer requiring payment on
that portion of the balance owed to them. Such removals were recorded
as gains on debt extinguishment.
As of May 31, 2013, the Company had accrued and withheld approximately
$319,000 in Federal payroll taxes and approximately $45,000 in
estimated penalties and interest, which are reflected in the financial
statements as other liabilities. Subsequent to the year ended May 31,
2013, the Company satisfied its obligation to the IRS in full.
As of May 31, 2013, the Company had accrued and withheld approximately
$64,000 in West Virginia payroll withholdings and approximately $14,000
in interest and penalties, which are reflected in the accompanying
financial statements as other liabilities. Subsequent to the year ended
May 31, 2013, the Company satisfied its obligation to the State of West
Virginia in full.
F-25
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - PREFERRED STOCK
REDEEMABLE PREFERRED STOCK
On December 30, 2005, through a private placement, the Company issued
350 shares of 4% Non-Voting Series A Preferred Stock (Series A
Preferred Stock), along with 1,050,000 warrants for common shares of
Company stock as additional consideration, for a cash investment in the
amount of $350,000, in connection with the Company's acquisition of
FSC. Holders of Series A Preferred Stock are entitled to participate in
FSC's partially collateralized bonding programs, subject to continuing
satisfaction of underwriting criteria, based upon the bonding capacity
of FSC attributable to capital reserves of FSC established with the
subscription proceeds (i.e., bonding capacity equal to ten times
subscription proceeds) and for so long as the subscriber holds the
Series A shares. Holders of the Series A Preferred Stock are entitled
to receive, when and as declared by the board of directors, cumulative
preferential cash dividends at a rate of four percent of the $1,000
liquidation preference per annum (equivalent to a fixed annual rate of
$40 per share). The Series A Preferred Stock ranks senior to the
Company's common stock and pari passu with the Company's Series B
Preferred and Series C Preferred Stock with respect to dividend rights
and rights upon liquidation, dissolution or winding up of the Company.
The holder may redeem the Series A Preferred Stock on or after the
seventh anniversary of the Issue Date, if the holder provides a written
statement to the Company that it will no longer require surety bonds
issued by the Company's insurance subsidiary (FSC) under its partially
collateralized bonding programs and, if no such surety bonds are then
outstanding, the Company, at the option of the holder, will redeem all
or any portion of the Series A Preferred Stock of such holder at a
price per share equal to the Series A Preferred Stock Issue Price plus
all accrued and unpaid dividends with respect to the shares of the
Series A Preferred Stock of such holder to be redeemed. The conditional
redemption shall not be available to any holder of Series A Preferred
Stock for so long as surety bonds of the Company's insurance subsidiary
issued on a partially collateralized basis remain outstanding for the
benefit of such holder, and upon redemption, such holder shall no
longer be eligible to participate in the partially collateralized
bonding programs of the insurance subsidiary. The Company is authorized
to issue up to 1,000,000 shares of the Series A Preferred Stock. As of
May 31, 2013, the Company has issued 2,675 shares of Series A Preferred
Stock in exchange for cash investments in the amount of $2,675,000, of
which no shares were issued in fiscal 2013 or 2012.
The Company's outstanding Series A Preferred stock matures on the
seventh anniversary of the issuance date and thereafter holders of the
Series A Stock are eligible to request that the Company redeem their
Series A Shares. As of May 31, 2013, the Company has received requests
for redemption of 100 shares of Series A Preferred. The aggregate
amount to which the holders requesting redemption are entitled as of
May 31, 2013, is $1,482,718.
Under the terms of the Series A Preferred Stock, upon receipt of such a
request, the Company's Board was required to make a good faith
determination regarding (A) whether the funds of the Company legally
available for redemption of shares of Series A Stock are sufficient to
redeem the total number of shares of Series A Stock to be redeemed on
such date and (B) whether the amounts otherwise legally available for
redemption would, if used to effect the redemption, not result in an
impairment of the operations of the Insurance Subsidiary. If the Board
F-26
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
determines that there is a sufficiency of legally available funds to
accomplish the redemption and that the use of such funds to affect the
redemption will not result in an impairment of the operations of the
Insurance Subsidiary, then the redemption shall occur on the Redemption
Date. If, however, the Board determines either that there are not
sufficient funds legally available to accomplish the redemption or that
the use of such funds to effect the redemption will result in an
impairment of the operations of the Insurance Subsidiary, then (X) the
Company shall notify the holders of shares that would otherwise have
been redeemed of such fact and the consequences as provided in this
paragraph, (Y) the Company will use those funds which are legally
available therefor and which would not result in an impairment of the
operations of the Insurance Subsidiary to redeem the maximum possible
number of shares of Series A Stock for which Redemption Notices have
been received ratably among the holders of such shares to be redeemed
based upon their holdings of such shares, and (Z) thereafter, until
such shares are redeemed in full, the dividends accruing and payable on
such shares of Series A Stock to be redeemed shall be increased by 2%
of the Series A Face Amount, with the amount of such increase (i.e., 2%
of the Series A Face Amount) to be satisfied by distributions on each
Dividend Payment Date of shares of Common Stock having a value
(determined by reference to the average closing price of such Common
Stock over the preceding 20 trading days) equal to the amount of such
increase. The shares of Series A Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided
herein. At any time thereafter when additional funds of the Company are
legally available for the redemption of shares of Series A Stock and
such redemption will not result in an impairment of operations of the
Insurance Subsidiary, such funds will immediately be used to redeem the
balance of the shares of Series A Stock to be redeemed. No dividends or
other distributions shall be declared or paid on, nor shall the Company
redeem, purchase or acquire any shares of, the Common Stock or any
other class or series of Junior Securities or Equal Ranking Preferred
of the Company unless the Redemption Price per share of all shares for
which Redemption Notices have been given shall have been paid in full,
provided that the redemption price of any Equal Ranking Preferred
subject to redemption shall be paid on a pari passu basis with the
Redemption Price of the Series A Stock subject to redemption in
accordance herewith. Until the Redemption Price for each share of
Series A Stock elected to be redeemed shall have been paid in full,
such share of Series A Stock shall remain outstanding for all purposes
and entitle the holder thereof to all the rights and privileges
provided herein, and Dividends shall continue to accrue and, if unpaid
prior to the date such shares are redeemed, shall be included as part
of the Redemption Price.
The Company's Board of Directors determined based on the criteria
established under the terms of the Preferred Stocks that there were
insufficient funds available for the redemption of Preferred Stocks.
On December 30, 2005, through a private placement, the Company issued
3,980 shares of 8% Non-Voting Series B Convertible Preferred Stock
(Series B Preferred Stock), along with 19,900,000 warrants for common
shares of Company stock as additional consideration, for a cash
investment in the amount of $2,985,000; and issued 4,891 shares of
Series B Preferred Stock, along with 24,452,996 warrants for common
shares of Company stock as additional consideration, for a conversion
of $3,667,949 of indebtedness of the Company, in connection with the
Company's acquisition of FSC. Holders of the Series B Preferred Stock
are entitled to receive, when and as declared by the board of
F-27
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
directors, cumulative preferential cash dividends at a rate of eight
percent of the $1,000 liquidation preference per annum (equivalent to a
fixed annual rate of $80 per share). The Series B Preferred Stock ranks
senior to the Company's common stock and pari passu with the Company's
Series A Preferred and Series C Preferred Stock with respect to
dividend rights and rights upon liquidation, dissolution or winding up
of the Company. Each share of the Series B Preferred Stock is
convertible at the option of the holder, at any time after the original
issue date, into 1,000 fully paid and non-assessable shares of the
Company's common stock at a conversion price of $1.00 per common share.
The Company may redeem the Series B Preferred Stock at any time after
the first anniversary of the Original Issue Date at a price per share
equal to the Series B Preferred Stock Face Amount plus all accrued and
unpaid dividends with respect to the shares of the Series B Preferred
Stock of such holder to be redeemed. To the extent that the Series B
Preferred Stock has not been redeemed by the Company, the holder may
redeem the Series B Preferred Stock on or after the fifth anniversary
of the Original Issue Date at a price per share equal to the Series B
Preferred Stock Face Amount plus all accrued and unpaid dividends with
respect to the shares of the Series B Preferred Stock of such holder to
be redeemed. The Company is authorized to issue up to 10,000 shares of
the Series B Preferred Stock. The Company has not issued any additional
shares of Series B Preferred Stock during fiscal 2013.
The Company's outstanding Series B Preferred stock matured on December
30, 2010, meaning that the holders of the Series B Stock that had not
requested exchange to the Company's Series C Preferred stock became
entitled to request that the Company redeem their Series B Shares. As
of May 31, 2013, of the 2,807 shares of Series B Preferred that
remained outstanding, the Company has received requests for redemption
of 2,219 shares of Series B Preferred. The aggregate amount to which
the holders requesting redemption are entitled as of May 31, 2013, is
$4,990,463.
Under the terms of the Series B Preferred Stock, upon receipt of such a
request, the Company's Board was required to make a good faith
determination regarding (A) whether the funds of the Company legally
available for redemption of shares of Series B Stock are sufficient to
redeem the total number of shares of Series B Stock to be redeemed on
such date and (B) whether the amounts otherwise legally available for
redemption would, if used to effect the redemption, not result in an
impairment of the operations of the Insurance Subsidiary. If the Board
determines that there is a sufficiency of legally available funds to
accomplish the redemption and that the use of such funds to affect the
redemption will not result in an impairment of the operations of the
Insurance Subsidiary, then the redemption shall occur on the Redemption
Date. If, however, the Board determines either that there are not
sufficient funds legally available to accomplish the redemption or that
the use of such funds to effect the redemption will result in an
impairment of the operations of the Insurance Subsidiary, then (X) the
Company shall notify the holders of shares that would otherwise have
been redeemed of such fact and the consequences as provided in this
paragraph, (Y) the Company will use those funds which are legally
available therefor and which would not result in an impairment of the
operations of the Insurance Subsidiary to redeem the maximum possible
number of shares of Series B Stock for which Redemption Notices have
been received ratably among the holders of such shares to be redeemed
based upon their holdings of such shares, and (Z) thereafter, until
such shares are redeemed in full, the dividends accruing and payable on
F-28
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
such shares of Series B Stock to be redeemed shall be increased by 2%
of the Series B Face Amount, with the amount of such increase (I.E., 2%
of the Series B Face Amount) to be satisfied by distributions on each
Dividend Payment Date of shares of Common Stock having a value
(determined by reference to the average closing price of such Common
Stock over the preceding 20 trading days) equal to the amount of such
increase. The shares of Series B Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided
herein. At any time thereafter when additional funds of the Company are
legally available for the redemption of shares of Series B Stock and
such redemption will not result in an impairment of operations of the
Insurance Subsidiary, such funds will immediately be used to redeem the
balance of the shares of Series B Stock to be redeemed. No dividends or
other distributions shall be declared or paid on, nor shall the Company
redeem, purchase or acquire any shares of, the Common Stock or any
other class or series of Junior Securities or Equal Ranking Preferred
of the Company unless the Redemption Price per share of all shares for
which Redemption Notices have been given shall have been paid in full,
provided that the redemption price of any Equal Ranking Preferred
subject to redemption shall be paid on a pari passu basis with the
Redemption Price of the Series B Stock subject to redemption in
accordance herewith. Until the Redemption Price for each share of
Series B Stock elected to be redeemed shall have been paid in full,
such share of Series B Stock shall remain outstanding for all purposes
and entitle the holder thereof to all the rights and privileges
provided herein, and Dividends shall continue to accrue and, if unpaid
prior to the date such shares are redeemed, shall be included as part
of the Redemption Price.
The Company's Board of Directors determined based on the criteria
established under the terms of the Series B Preferred Stock that there
were insufficient funds available for the redemption of Series B Stock.
The Company experienced a loss after accretion of mandatorily
redeemable convertible preferred stock, and accrued dividends on
mandatorily redeemable preferred stock of $2,031,471 in fiscal 2013 as
compared with a loss after accretion of mandatorily redeemable
convertible preferred stock, and accrued dividends on mandatorily
redeemable preferred stock of $1,219,559 in fiscal 2012.
F-29
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EQUITY PREFERRED STOCK
As a means of alleviating obligations associated with the Company's
Series B Preferred Stock, which by its terms matured at the end of
2010, management proposed a recapitalization to assist in stabilizing
the financial position of the Company. The Company's Certificate of
Incorporation provides for two classes of capital stock, known as
common stock, $0.0001 par value per share (the "COMMON STOCK"), and
preferred stock, $0.0001 par value per share (the "PREFERRED STOCK").
The Company's Board is authorized by the Certificate of Incorporation
to provide for the issuance of the shares of Preferred Stock in series,
and by filing a certificate pursuant to the applicable law of the State
of Delaware, to establish from time to time the number of shares to be
included in such series and to fix the designations, preferences and
rights of the shares of each such series and the qualifications,
limitations and restrictions thereof. The Board deemed it advisable to
designate a Series C Preferred Stock and fixed and determined the
preferences, rights, qualifications, limitations and restrictions
relating to the Series C Preferred Stock as follows:
1. Designation. The shares of such series of Preferred Stock
are designated "Series C Preferred Stock" (referred to herein as the
"SERIES C STOCK"). The date on which the first share of Series C Stock
is issued shall hereinafter be referred to as the "ORIGINAL ISSUE
DATE".
2. Authorized Number. The number of shares constituting the
Series C Stock is 10,000.
3. Ranking. The Series C Stock ranks, (a) as to dividends and
upon Liquidation senior and prior to the Common Stock and all other
equity securities to which the Series C ranks prior, with respect to
dividends and upon Liquidation (collectively, "JUNIOR SECURITIES"), (b)
pari passu with the Corporation's Series A Preferred Stock, par value
$0.0001 per share (the "SERIES A STOCK"), the Corporation's Series B
Stock, and any other series of Preferred Stock subsequently established
by the Board with equal ranking (any such other series of Preferred
Stock, together with the Series C Stock, the Series B Stock and Series
A Stock are collectively referred to as the "EQUAL RANKING PREFERRED")
and (c) junior to any other series of Preferred Stock subsequently
established by the Board with senior ranking.
4. Dividends. (a) DIVIDEND ACCRUAL AND PAYMENT. The holders of
the Series C Stock shall be entitled to receive, in preference to the
holders of Junior Securities, dividends ("DIVIDENDS") on each
outstanding share of Series C Stock at the rate of 8% per annum of the
sum of (i) the Series C Face Amount plus (ii) an amount equal to any
accrued, but unpaid, dividends on such Series C Stock, including for
this purpose the exchanged Series B Amount outstanding with respect to
such Series C Stock. For purposes hereof, the "SERIES B AMOUNT" means
an amount equal to the dividend that would have accrued on such Series
C Stock held by such holder from and after the Series B Original Issue
Date applicable to such share of Series C Stock, through the Original
Issue Date as if such Series C Stock had been issued on such Series B
Original Issue Date, less all amounts thereof distributed by the
Corporation with respect to such Series C Stock. Dividends shall be
payable quarterly in arrears on each January 1, April 1, July 1 and
October 1 following the Original Issue Date, or, if any such date is a
Saturday, Sunday or legal holiday, then on the next day which is not a
Saturday, Sunday or legal holiday (each a "DIVIDEND PAYMENT DATE"), as
declared by the Board and, if not paid on the Dividend Payment Date,
shall accrue. Amounts available for payment of Dividends (including for
F-30
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
this purpose the Series B Amount) shall be allocated and paid with
respect to the shares of Series C Preferred and any other Equal Ranking
Preferred, FIRST, among the shares of Equal Ranking Preferred pro rata
in accordance with the amounts of dividends accruing with respect to
such shares at the current Dividend Payment Date, and, THEN, any
additional amounts available for distribution in accordance with the
accrued, but unpaid, dividends (and the Series B Amount then
outstanding) at each prior Dividend Payment Date, in reverse
chronological order, with respect to all shares of the Equal Ranking
Preferred then outstanding in accordance with amounts accrued, but
unpaid. For purposes hereof, the term "SERIES B ORIGINAL ISSUE DATE"
shall mean, with respect to any share of Series C Stock issued by the
Corporation in exchange for a share of Series B Stock, the date on
which the Corporation originally issued such share of Series B Stock.
The Recapitalization consisted of the exchange of Series B Shares for a
combination of Series C Shares and Common Stock. For each Series B
Share, the participating holder received (i) one Series C Share and
(ii) 2,000 shares of JFG Common Stock (for no additional
consideration).
For the year ending May 31, 2010, 6,805 shares of Series B Stock were
surrendered and exchanged for 6,805 shares of Series C Stock. This
exchange amounted to $6,269,051 of carrying value of Series B stock
being exchanged for Series C and Common Stock. 13,609,872 shares of
Common Stock were issued to the Series C Stock holders at the rate of
2,000 Common shares for each exchanged Series B Stock, with the related
cost associated with the Common issuance offsetting the Series C
carrying value by $265,120. The shares were valued at approximately
$.01948 per share based on the average quoted closing price of the
Company's stock for the 20-day period proceeding the date of the
transaction. Series C stock may be redeemed by the Company but does not
have a fixed maturity date and, thus, is classified as permanent
equity. For the year ending May 31, 2013, 2,817 shares of Series B
Stock had not been exchanged.
The accrual of dividends on the equity preferred stock resulted in a
charge to common stockholders' equity and a credit to the equity of
equity preferred stock of $915,335 in fiscal 2013 as compared with a
charge to common stockholders' equity of $847,833 in fiscal 2012.
DIVIDEND PREFERENCE AND ACCRETION
The Series A Shares are entitled to receive cumulative dividends at the
compounding rate of 4.00% per annum.
The Series B Shares have an 8.0% per annum compounding dividend
preference, are convertible into Common Shares of JFG at the option of
the holders at a conversion price of $1.00 per Share (as adjusted for
dilution) and, to the extent not converted, must be redeemed by the
Corporation at any time after December 31, 2010 at the option of the
holder. Any such redemption is subject to legal constraints, such as
the availability of capital or surplus out of which to pay the
redemption, and to a determination by the Board of Directors that the
redemption will not impair the operations of First Surety Corporation.
F-31
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Series C Shares issued in the Recapitalization have the same 8.0%
per annum compounding dividend preference and carry over from the
Series B Shares the same accrued but unpaid dividends. While dividends
had never been declared on the Series B shares, they had been accrued,
increasing the dividend preference and the redemption price and
liquidity preference of such shares and increasing the liability
represented thereby based upon the Series B Shares fixed maturity date.
The accrued (but undeclared) dividends associated with the Series C
exchange amounted to $2,295,624 and are included in the total amount
exchanged for Series C Shares. Unlike the Series B Shares with their
fixed maturity date, the Series C Shares are permanent equity, with
accruing dividends only increasing the preference amount that must be
satisfied before junior securities may participate in dividends or on
liquidation. Accordingly, the effect of the accrual of dividends with
respect to the Series C Shares on the Company's balance sheet is to
increase the aggregate claim of the Series C Shares on the equity of
the corporation and to increase the deficit in common equity, while
having no effect on the net equity of the corporation as a whole. The
entitlement of the Series C Shares to a priority in relation to junior
securities with respect to dividends and on liquidation does not create
an obligation to the Company and therefore no liability is recorded
until the dividends are declared by the Board of the Company. The
Series C Shares are pari passu with the Corporation's Series A
Preferred Stock and Series B Shares (to the extent any remain
outstanding following the Recapitalization) and no dividends or other
distributions will be paid upon Common Shares or any other class of
Shares that is junior in priority to the Series C Preferred while
dividends are in arrears. In addition, the Series C Shares are
convertible into Common Shares of JFG at the option of the holders at a
conversion price of $0.10 per Share. The Series C Shares may be
redeemed by the Corporation, at its option, when it is in a financial
position to do so.
Holders of over 70% of the outstanding Series B Preferred Shares
elected to participate in the recapitalization. The shares of Series B
Preferred Shareholders that chose not to convert are listed in the
Liabilities section of the Balance Sheet, and therefore the accretion
and dividends associated with the Series B stock after November 30,
2009 are deductions from net income. Dividends on Series B mandatorily
redeemable preferred stock deducted from net income amounted to
$380,239 for the year ended May 31, 2013. The remaining Series B shares
not converted were accreted from carrying value to the face amount for
the 5 year period from the date of issuance. Series C stock has no
accretion. There were no shares of Series B Stock surrendered or
exchanged in the year ended May 31, 2013.
During the year ended May 31, 2012, two holders of Series A stock
released all of their outstanding bonds held with FSC. These shares of
Series A Preferred Shareholders are listed in the liability section of
the Balance Sheet as of May 31, 2013, in the amount of $1,482,718,
which consists of $1,126,000 face value of stock and $356,718 in
dividends payable. The dividends associated with these shares of Series
A stock for the year ended May 31, 2013, is a deduction from net income
in the amount of $57,855. There was no accretion on these shares of
Series A stock.
As of May 31, 2013 the Company has chosen to defer payment of dividends
on Series A Preferred Stock with such accrued and unpaid dividends
amounting to $724,048 through May 31, 2013.
F-32
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of May 31, 2013 the Company has chosen to defer payment of dividends
on Series B and Series C Preferred Stock with such accrued and unpaid
dividends amounting to $2,175,985 and $5,214,516 through May 31, 2013.
ACCOUNTING TREATMENT
U.S. GAAP requires that an entity classify as liabilities certain
financial instruments with characteristics of both liabilities and
equity. The Company's Series A and B preferred stock each have
mandatory redemption features that subject the Company to the analysis
of equity versus liability. Both Series A and B have features that
embody a conditional obligation to redeem the instrument upon events
not certain to occur and accordingly, are not classified as liabilities
until such events are certain to occur. With respect to the Series A
Preferred Stock, such condition is contingent upon the holder having no
further need for surety bonds issued by the Company's insurance
subsidiary (FSC) under its partially collateralized bonding programs
and, having no such surety bonds then outstanding. With respect to the
Series B Preferred Stock, if the stock provides an option to the holder
to convert to common shares at a rate equivalent to fair value, then
the financial instruments are not mandatorily redeemable during the
period in which the holder can convert the shares into common shares.
Accordingly, the Company has determined that only the Series A
preferred stocks held by principals with outstanding surety bonds
should not be classified as liabilities. However, in accordance with
Securities and Exchange Commission (SEC) Issued Topic No. D- 98, SEC
Staff Announcement, "Classification and Measurement of Redeemable
Securities", a company that issues preferred shares that are
conditionally redeemable is required to account for the conditionally
redeemable preferred shares in accordance with Accounting Series
Release 268, which states that the shares are to be reflected on the
Company's balance sheet between total liabilities and stockholders'
equity as temporary equity.
NOTE K - STOCK WARRANTS
On December 30, 2005, the Company issued warrants to purchase
45,402,996 shares of common stock in connection with the Series A and B
Preferred Stock private placements. The exercise price of the warrants
is $.001 per share. The warrants were valued using the Black-Scholes
pricing model. The warrants issued in connection with the Series A
Preferred Stock were valued at $.08 per share or $83,043. The warrants
issued in connection with the Series B Preferred Stock were valued at
$.01 per share or $449,972.
386,667 warrants issued in connection with Series B Preferred Stock
expired unexercised on the fifth anniversary at December 31, 2010;
600,000 warrants issued in connection with Series A Preferred Stock
expired unexercised on the seventh anniversary at December 31, 2012.
As of May 31, 2013 there were no warrants outstanding.
F-33
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L-STOCK-BASED COMPENSATION
On October 12, 2005, the board of directors adopted its 2005 Stock
Incentive Plan (the "Plan") to allow the Company to make awards of
stock options as part of the Company's compensation to key employees,
non-employee directors, contractors and consultants. The Plan was
approved by the stockholders on December 8, 2005. The aggregate number
of shares of Common Stock issuable under all awards under the Plan is
35,000,000. No awards may be granted under the Plan after December 8,
2015. On July 9, 2012, the Company issued 22,600,000 shares to
employees and a board member as additional compensation, reducing the
number of shares of Common Stock issuable under all awards under the
plan to 12,400,000.
On December 28, 2006, the compensation committee of the board of
directors awarded 2,100,000 of incentive stock options to acquire
common shares at an exercise price of $.04 per share, of which 450,000
shares vested immediately and the remaining 1,650,000 options vesting
over the next three years ending in December 2009. As of May 31, 2010,
the awarded options had been reduced to 1,800,000 due to changes in
employment status, all of which expired in December 2011.
On June 30, 2009 the compensation committee of the board of directors
awarded 10,000,000 of incentive stock options to acquire common shares
at an exercise price of $.04 per share, of which 4,700,000 shares
vested immediately and the remaining 5,300,000 options vesting over the
next three years ending in June 2011. The term of the options is five
years and expires in June 2014. As of May 31, 2013, the awarded options
had been reduced to 9,800,000 due to changes in employment status.
The following table summarizes option activity under the Plan for the
fiscal year ended May 31, 2013.
Number Weighted-Avg.
Weighted-Avg. Of Shares Remaining Aggregate
Exercise Under Life Intrinsic
Price Option (Years) Value
-------------- ------------ ---------- --------------
Balance at June 1, 2012 $ .04000 10,000,000
Options granted - -
Options exercised - -
Options canceled/expired .04000 200,000
-------------- ------------
Balance, May 31, 2013 $ .04000 9,800,000
============== ============
Exercisable at May 31, 2013 $ .04000 9,800,000 1.08 $ -
============== ============
Expected to vest $ - - - $ -
============== ============
|
There were no options exercised in fiscal 2013 or 2012. The total fair
value of shares vested amounted to approximately $9,000 in fiscal 2012.
All shares were vested as of May 31, 2012.
Stock-based compensation expense attributable to such awards amounted
to $370 in the fiscal year ended May 31, 2012. There is no unrecognized
F-34
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
compensation expense related to non-vested awards at May 31, 2013 or
May 31, 2012 as all awards are fully vested.
The Company estimates the fair value of stock options using a
Black-Scholes valuation model. Key inputs and assumptions used to
estimate the fair value of stock options include the grant price of the
award, the expected option term, volatility of the Company's stock, the
risk-free interest rate and the company's dividend yield.
NOTE M - INCOME TAXES
Deferred tax assets and liabilities are recorded for the effects of
temporary differences between the tax basis of an asset or liability
and its reported amount in the consolidated financial statements. Such
differences include the income recognition of a portion of the unearned
premium reserve, loss reserve deductibility, accruals not currently
deductible relating to stock option expense and certain accrued
expenses that are not paid within specified time frames by the Internal
Revenue Service, and the deductibility of deferred policy acquisition
costs paid. As of May 31, 2013, the Company had operating loss carry
forwards of approximately $18.6 million. These carry forwards begin
expiring in 2015 and, as a result of the ownership change resulting
from the 2001 acquisitions of FSI and Jacobs, the utilization of
approximately $6.4 million of the operating loss carry forwards are
substantially limited.
The Company has fully reserved the $6.6 million tax benefit of the
operating loss carry forward, by a valuation allowance of the same
amount, because the likelihood of realization of the tax benefit cannot
be determined.
NOTE N - STOCKHOLDERS' EQUITY
In fiscal 2013, the Company issued 2,527,500 shares of the Company's
common stock as additional consideration in connection with new and
continued borrowings totaling $2,147,500. The shares were valued at
approximately $.005295 per share based on the average quoted closing
price of the Company's stock for the 20-day period proceeding the date
of the transaction and totaled $13,383.
On fiscal 2013, the Company issued 9,056,539 shares of the Company's
common stock in connection with the additional 2% stock dividend
associated with Series A and B Preferred shares that were requested to
be redeemed upon maturity (see Note J). The shares were valued at
approximately $.004883 per share based on the average quoted closing
price of the Company's stock for the 20-day period proceeding the date
of the transaction and totaled $44,227.
In fiscal 2013, the Company issued 8,573,594 shares of the Company's
common stock in connection with the semi-annual issuance of shares
under terms of the bridge-financing arrangement. The shares were valued
at approximately $.01874 per share based on the average quoted closing
price of the Company's stock for the 20-day period proceeding the date
of the transaction and totaled $160,669.
In fiscal 2013, the Company issued 8,947,444 shares of the Company's
common stock in connection with the semi-annual issuance of shares
under terms of the bridge-financing arrangement. The shares were valued
F-35
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
at approximately $.00505 per share based on the average quoted closing
price of the Company's stock for the 20-day period proceeding the date
of the transaction and totaled $45,185.
In fiscal 2013, the Company awarded 50,000 shares to an individual as
compensation for services instrumental to advancing the Company's
business plan. The shares were valued at approximately $.004875 per
share based on the average quoted closing price of the Company's stock
for the 20-day period proceeding the date of the transaction and
totaled $244.
On July 9, 2012 the Company issued 22,600,000 shares of the Company's
common stock to employees and other individuals for services rendered.
The shares were valued at approximately $.002650 per share based on the
average quoted closing price of the Company's stock for the 20-day
period preceding the date of the transaction and totaled $59,890.
In fiscal 2012, the Company issued 3,545,000 shares of the Company's
common stock as additional consideration in connection with new and
continued borrowings totaling $2,798,000. The shares were valued at
approximately $.005088 per share based on the average quoted closing
price of the Company's stock for the 20-day period proceeding the date
of the transaction and totaled $18,036.
In fiscal 2012, the Company issued 9,029,800 shares of the Company's
common stock in connection with the additional 2% stock dividend
associated with Series B Preferred shares that were requested to be
redeemed upon maturity (see Note J). The shares were valued at
approximately $.00444 per share based on the average quoted closing
price of the Company's stock for the 20-day period proceeding the date
of the transaction and totaled $40,098.
In fiscal 2012, the Company issued 7,043,710 shares of the Company's
common stock in connection with the semi-annual issuance of shares
under terms of the bridge-financing arrangement. The shares were valued
at approximately $.00506 per share based on the average quoted closing
price of the Company's stock for the 20-day period proceeding the date
of the transaction and totaled $35,561.
In fiscal 2012, the Company issued 7,430,017 shares of the Company's
common stock in connection with the semi-annual issuance of shares
under terms of the bridge-financing arrangement. The shares were valued
at approximately $.00360 per share based on the average quoted closing
price of the Company's stock for the 20-day period proceeding the date
of the transaction and totaled $26,748.
In fiscal 2012, the Company awarded 1,000,000 shares to an individual
as compensation for services rendered. The shares were valued at
approximately $.004447 per share based on the average quoted closing
price of the Company's stock for the 20-day period proceeding the date
of the transaction and totaled $4,470.
NOTE O - STATUTORY FINANCIAL DATA (UNAUDITED)
The Company's insurance subsidiary files calendar year financial
statements prepared in accordance with statutory accounting practices
prescribed or permitted by regulatory authorities. The principal
F-36
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
differences between statutory financial statements and financial
statements prepared in accordance with generally accepted accounting
principals are that statutory financial statements do not reflect
deferred policy acquisition costs and certain assets are non-admitted.
Statutory surplus as of May 31, 2013 and 2012 and net income for the
Company's insurance subsidiary for the calendar year ended December 31,
2012 and 2011 and five-month periods ended May 31, 2013 and 2012 are as
follows:
-------------------- ------------------------ ----------------
Statutory Surplus May 31, 2013 $5,804,785
-------------------- ------------------------ ----------------
Statutory Surplus May 31, 2012 6,075,541
==================== ======================== ================
Net Income Calendar year 2012 350,214
-------------------- ------------------------ ----------------
Net Income Calendar year 2011 378,455
==================== ======================== ================
Net Income Five-month period 2013 75,003
-------------------- ------------------------ ----------------
Net Income Five-month period 2012 167,043
-------------------- ------------------------ ----------------
|
Statutory surplus exceeds the minimum capital requirements provided by
West Virginia state law of $2.0 million.
Under the West Virginia insurance code, ordinary dividends to
stockholders are allowed to be paid only from that part of the
insurance subsidiary's (FSC's) available surplus funds which
constitutes realized net profits from the business and whereby all such
dividends or distributions made within the preceding twelve months does
not exceed the lesser of 10% of the insurance subsidiary's (FSC's)
surplus as regards to policyholders as of December 31st of the
preceding year-end or net income from the insurance subsidiary's
(FSC's) operations from the previous two calendar years not including
capital gains. Any payment of extraordinary dividends requires prior
approval from the WV state insurance commissioner.
On March 26, 2012 the Commissioner of the State of West Virginia
terminated in its entirety the Amended Consent Order of June 7, 2007
and terminated the restrictive conditions of the Consent Order issued
December 23, 2005 which approved acquisition of the insurance
subsidiary by the Company. Among other consequences, removal of these
restrictions allowed dividends to be declared by and paid from the
insurance subsidiary to the Company. Dividends in the amounts of
$590,000 and $380,000 were declared and paid for the twelve month
periods ending May 31, 2013 and May 31, 2012.
F-37
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases certain office equipment with combined monthly
payments of approximately $465 that have varying remaining terms of
less than five years. The Company leases office, parking and storage
space under month-to-month lease arrangements that approximate $3,844
each month.
The Company' inactive subsidiary, CMW, holds an undeveloped leasehold
interest in a mineral water spring located near Hot Springs, Arkansas.
Under the leasehold arrangement, the Company makes minimum lease
payments of $180 per month. The Company has options to extend the
leasehold arrangement through October 2026 and also has a right to
cancel the lease at any time upon sixty (60) days written notice.
Rental expense for these lease commitments totaled approximately
$54,880 and $56,112 during fiscal years 2013 and 2012.
Minimum future lease payments under non-cancelable operating leases
having remaining terms in excess of one year as of May 31, 2013 are:
Fiscal year 2013-2014 $ 5,580
----------------------- -----------
Fiscal year 2014-2015 5,580
----------------------- -----------
Fiscal year 2015-2016 5,580
----------------------- -----------
Total $ 16,740
|
NOTE Q - FINANCIAL INSTRUMENTS
FAIR VALUE
The following methods and assumptions were used to estimate fair value
of each class of financial instruments for which it is practicable to
estimate that value:
INVESTMENT SECURITIES
Fair values for investment securities (U.S. Government, government
agencies, government agency mortgage-backed securities, state and
municipal securities, and equity securities) held for investment
purposes (available-for-sale) are based on quoted market prices or
dealer quotes. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
OTHER FINANCIAL INSTRUMENTS
The carrying amount of cash, short-term investments, receivables,
prepaid expenses, short-term and demand notes payable, accounts
payable, accrued expenses and other liabilities approximate fair value
because of the immediate or relatively short-term maturity of these
financial instruments. Fair value of term notes payable, including
notes payable under the bridge-financing arrangement, were deemed to
approximate their carrying value based on the Company's incremental
borrowing rates for similar types of borrowings with maturities
consistent with those remaining for the debt being valued.
The carrying values and fair values of the Company's financial
instruments at May 31, 2013 and 2012 are as follows:
F-38
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2013 2012
-------------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------ ------------ -----------
ASSETS
Bonds available for sale $ 5,472,116 $ 5,472,116 $ 6,098,648 $ 6,098,648
Cash and short-term investments 1,570,460 1,570,460 1,250,954 1,250,954
Premiums and other receivables 300,303 300,303 332,444 332,444
Equity securities (including derivatives) 454,639 454,639 484,274 484,274
LIABILITIES
Notes payable 4,847,170 4,847,170 5,213,954 5,213,954
Accounts payable and advance premiums 538,289 538,289 421,338 421,338
Accrued expenses and other liabilities
3,720,114 3,720,114 2,690,199 2,690,199
|
NOTE R - OTHER RISKS AND CONCENTRATIONS
CONCENTRATION OF CREDIT RISK
As of May 31, 2013 the Company's investment securities of approximately
$7,200,000 are solely comprised of mortgage-backed securities, fixed
maturity municipal bonds, equity investments, and money-market mutual
funds that invest principally in obligations issued by the U.S
government, its agencies or instrumentalities. Such instruments are
generally considered to be of the highest credit quality investment
available.
The Company transacts the majority of its business with three financial
institutions, one for commercial banking services and the others for
brokerage and custodial services. Periodically, the amount on deposit
in financial institutions providing commercial banking services exceeds
the $250,000 federally insured limit. Management believes these
financial institutions are financially sound. With respect to the
financial institutions providing brokerage and custodial services,
amounts on deposit are invested in money market funds that invest
principally in obligations issued by the U.S government, its agencies
or instrumentalities.
Management believes that substantially all receivables are collectible,
and therefore has not established an allowance for estimated
uncollectible accounts.
CONCENTRATION IN PRODUCTS, MARKETS AND CUSTOMERS
The Company's insurance subsidiary currently writes only the surety
line of business, is licensed to write surety only in West Virginia and
Ohio and has focused its primary efforts towards coal permit bonds.
Such business, including investment advisory fees from managed
collateral accounts, accounted for approximately 56% and 63% of the
Company's fiscal 2013 and 2012 revenues, respectively. Furthermore, the
Company provides surety bonds to companies that share common ownership
F-39
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
interests that constitute 37% and 45% of the Company's fiscal 2013 and
2012 revenues, respectively, as follows:
------------------------------- ---------------------- ----------------------
2013 2012
------------------------------- ---------------------- ----------------------
Investment Investment
Surety Advisory Surety Advisory
Premium Fees Premium Fees
------------------------------- ---------- ----------- ---------- -----------
Customer group # 1 $ 133,000 $ - $ 77,000 $ 2,900
------------------------------- ---------- ----------- ---------- -----------
Customer group # 2 117,000 40,000 567,000 104,000
------------------------------- ---------- ----------- ---------- -----------
Customer group # 3 242,000 3,000 195,000 3,000
------------------------------- ---------- ----------- ---------- -----------
Customer group # 4 138,000 3,700 94,000 3,400
------------------------------- ---------- ----------- ---------- -----------
TOTAL $ 630,000 $ 46,700 $ 933,000 $ 113,300
------------------------------- ---------- ----------- ---------- -----------
|
NOTE S - SEGMENT REPORTING
The Company has two reportable segments, investment advisory services
and surety insurance products and services. The following table
presents revenue and other financial information by industry segment.
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
F-40
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED
INDUSTRY SEGMENT MAY 31, 2013 MAY 31, 2012
---------------- --------------- ---------------
REVENUES:
Investment advisory $ 194,034 $ 257,087
Surety insurance 1,150,621 1,576,107
Corporate - 150,604
--------------- ---------------
Total revenues $ 1,344,655 $ 1,983,798
=============== ===============
OPERATING INCOME (LOSS):
Investment advisory $ 19,372 $ 73,432
Surety insurance 316,038 613,377
Corporate (2,292,107) (1,792,642)
--------------- ---------------
Total operating income (loss) $ (1,956,697) $ (1,105,833)
=============== ===============
IDENTIFIABLE ASSETS:
Investment advisory $ 51,017 $ 60,932
Surety insurance 8,349,897 8,739,074
Corporate 83,219 88,433
--------------- ---------------
Total assets $ 8,484,133 $ 8,888,439
=============== ===============
CAPITAL ACQUISITIONS:
Investment advisory $ - $ -
Surety insurance - -
Corporate - -
--------------- ---------------
Total capital acquisitions $ - $ -
=============== ===============
DEPRECIATION CHARGED TO
IDENTIFIABLE ASSETS:
Investment advisory $ 45 $ 45
Surety insurance 7,874 7,874
Corporate 2,766 2,817
--------------- ---------------
Total Depreciation $ 10,685 $ 10,736
=============== ===============
INTEREST EXPENSE:
Investment advisory $ - $ -
Surety insurance - -
Corporate 1,073,338 905,601
--------------- ---------------
Total interest expense $ 1,073,338 $ 905,601
=============== ===============
|
F-41
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE T - RELATED PARTY TRANSACTIONS
BORROWING AND OTHER TRANSACTIONS OF LARGEST SHAREHOLDER AND CEO
For the past several years the Company's operating expenses were
partially funded by advances from its largest shareholder and chief
executive officer, John M. Jacobs. The source of funding for these
advances originated with obligations incurred by Mr. Jacobs with third
parties (such obligations together with the loans by Mr. Jacobs to the
Company, "back-to-back loans") with interest rates ranging from 6.75%
to 12%.
To assure that repayments of the various borrowings by the Company that
were either guaranteed by Mr. Jacobs or loaned to the Company by Mr.
Jacobs via such back-to-back loan arrangements did not result in a
deemed loan to Mr. Jacobs, because Mr. Jacobs entered into an
Assumption Agreement with the Company. Pursuant to the assumption
agreement Mr. Jacobs assumes, and agrees to hold the Company harmless
from, principal of specified indebtedness of the Company and to fully
offset when necessary what might otherwise be deemed an advance of
funds arising out of the Company's financing activities.
During fiscal 2013, advances to the Company from Mr. Jacobs amounted to
$1,310,925, which included assumption of company debt in the amount of
$319,653, and repayments to Mr. Jacobs amounted to $1,429,190. As of
May 31, 2013, the balance due the Company from Mr. Jacobs was $175,312.
The largest aggregate amount outstanding to Mr. Jacobs in fiscal 2012
was $20,925.
During fiscal 2012, advances to the Company from Mr. Jacobs amounted to
$1,124,925, which included assumption of company debt in the amount of
$393,519, and repayments to Mr. Jacobs amounted to $1,152,006. As of
May 31, 2012, the balance due the Company was $57,046. The largest
aggregate amount outstanding to Mr. Jacobs in fiscal 2012 was $18,003.
The rate of interest on such amounts due from and obligations due to
Mr. Jacobs was 12% for both the 2013 and 2012 fiscal years.
OTHER RELATED PARTIES
During the years ended May 31, 2013 and May 31, 2012, a company owned
by a board member provided consulting services. This company provided
services totaling $62,100 and $62,100 in 2013 and 2012. Amounts owed to
this company at year end are treated as related party payables in the
amounts $124,409 and $109,309 at May 31, 2013 and 2012 respectively.
During the year ended May 31, 2009, the Company borrowed money from an
individual that became a board member during 2010. On March 22, 2013
this individual resigned his duties as a board member. Total amounts
owed to this individual at May 31, 2013 and May 31, 2012 consisted of
$75,000 in demand notes and $360,000 in bridge financing.
NOTE U - REINSURANCE
The Company limits the maximum net loss that can arise from large risks
by reinsuring (ceding) certain levels of such risk with reinsurers.
Ceded reinsurance is treated as the risk and liability of the assuming
F-42
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
companies. The Company cedes insurance to other companies and these
reinsurance contracts do not relieve the Company from its obligations
to policyholders.
Effective April 1, 2009, FSC entered into a reinsurance agreement with
various syndicates at Lloyd's of London ("Reinsurer") for its coal
reclamation surety bonding programs. The agreement has been renewed
annually with the Reinsurer, with the most recent renewal effective
July 1, 2012. The reinsurance agreement is an excess of loss contract
which protects the Company against losses up to certain limits over
stipulated amounts and can be terminated by either party by written
notice of at least 90 days prior to any July 1. The contract calls for
a premium rate of 35% subject to a minimum premium $490,000. Deposits
are made to the reinsurers quarterly in arrears in equal amounts of
$140,000. At May 31, 2013 and May 31, 2012, the Company had prepaid
reinsurance premiums of $196,565 and $243,877 and ceded reinsurance
deposited of $41,605 and $42,458.
There were no ceded Loss and Loss Adjustment Expenses for the years
ended May 31, 2013 or 2012.
The effects of reinsurance on premium written and earned for fiscal
2013 and 2012 are as follows;
2013 Written 2013 Earned 2012 Written 2012 Earned
------------- ------------ ------------- ------------
Direct $1,088,202 $1,237,316 $1,343,661 $ 1,424,355
Ceded 441,893 489,204 446,853 467,739
------------- ------------ ------------- ------------
Net $ 646,309 $ 748,112 $ 896,808 $ 956,616
============= ============ ============= ============
|
NOTE V - EVENTS SUBSEQUENT TO MAY 31, 2013
Subsequent to May 31, 2013, the Company obtained various borrowings
from individuals and businesses totaling $645,500 at rates varying from
10% to 14%, which mature at various dates subsequent to this filing,
and made repayments on notes in the amount of $497,406. These
borrowings, and the renewal of other borrowings, included the issuance
of 1,057,356 shares of its common stock as additional consideration.
Additionally, the Company obtained borrowings of $1,470,633 from its
principal shareholder and chief executive officer under its
pre-approved financing arrangement bearing interest at the rate of 12%
and made repayments totaling $1,122,024. After taking into account the
net accrued payroll owed that is to be offset against these borrowings,
the balance owed to the principal shareholder is $330,311 at the date
of this filing.
On September 10, 2013, in accordance with the Bridge financing
agreement, the Company became obligated to issue in the aggregate
9,316,337 shares of its common stock to the holders of such notes.
On May 10, 2014, in accordance with the Bridge financing agreement, the
Company became obligated to issue in the aggregate 9,630,856 shares of
its common stock to the holders of such notes.
On September 10, 2014, in accordance with the Bridge financing
agreement, the Company became obligated to issue in the aggregate
10,221,845 shares of its common stock to the holders of such notes.
F-43
JACOBS FINANCIAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company elected to continue to defer payment of quarterly dividends
on its Series A Preferred Stock, Series B Preferred Stock, and Series C
Preferred Stock with such accumulated accrued and unpaid dividends
amounting to $933,351, $2,806,516, and $6,732,373 as of September 30,
2014.
On July 1, 2013 the Company issued 1,236,782 Common shares representing
the additional 2% stock dividend for the quarter ending June 30, 2013
to the holders of Series A and B Preferred shares that had requested to
be redeemed upon maturity (see Note J).
On October 1, 2013 the Company issued 1,463,551 Common shares
representing the additional 2% stock dividend for the quarter ending
September 30, 2013 to the holders of Series A and B Preferred shares
that had requested to be redeemed upon maturity (see Note J).
On January 1, 2014 the Company issued 3,415,315 Common shares
representing the additional 2% stock dividend for the quarter ending
December 31, 2013 to the holders of Series A and B Preferred shares
that had requested to be redeemed upon maturity (see Note J).
On April 1, 2014 the Company issued 4,879,900 Common shares
representing the additional 2% stock dividend for the quarter ending
March 31, 2014 to the holders of Series A and B Preferred shares that
had requested to be redeemed upon maturity (see Note J).
On July 1, 2014 the Company issued 2,105,485 Common shares representing
the additional 2% stock dividend for the quarter ending June 30, 2014
to the holders of Series A and B Preferred shares that had requested to
be redeemed upon maturity (see Note J).
On October 1, 2014 the Company issued 3,193,319 Common shares
representing the additional 2% stock dividend for the quarter ending
September 30, 2014 to the holders of Series A and B Preferred shares
that had requested to be redeemed upon maturity (see Note J).
On July 9, 2014 the Company completed a $4,500,000 financing. In
effect, a subsidiary of Company borrowed the funds at 8.00% interest
with principal repayments on a ten year schedule. Proceeds of the
borrowing were applied (i) to purchase from certain of the Company's
note holders 50.7% ($1.775 million face amount) of the outstanding
senior promissory notes comprising a $3.5 million financing dating from
2008 (the Bridge financing agreement), together with interest accrued
thereon and the associated collateral, which senior promissory notes
have been in default, (ii) to pay in full delinquent tax liabilities
owed to the Internal Revenue Service and State of West Virginia, (iii)
to pay an outstanding judgment, and (iv) to pay certain other current
liabilities. The financing was a product of the Registrant's ongoing
efforts to restructure its balance sheet to position itself to take
advantage of business opportunities.
F-44
-----------------------------------------------------------------------------------------------------------------------------
SUMMARY OF INVESTMENTS-
OTHER THAN INVESTMENTS IN RELATED PARTIES SCHEDULE I
------------------------------------------------------------------------------------------------------------------------------
AMOUNT
AT WHICH
AT MAY 31, 2013 SHOWN IN THE
COST* VALUE BALANCE SHEET
------------- --------------- ---------------
Fixed maturities:
Bonds:
United States Government and government agencies and authorities $ - $ - $ -
Foreign obligations 200,750 193,837 198,837
States, municipalities, and political subdivisions 1,760,341 1,729,007 1,729,007
------------- --------------- ---------------
Total fixed maturities 1,961,091 1,922,844 1,927,844
Equity securities (including derivatives):
Common stock and derivatives 455,708 454,639 454,639
------------- --------------- ---------------
Total equity securities 455,708 454,639 454,639
Mortgage-backed securities guaranteed by U.S. government agency 3,413,161 3,549,272 3,549,272
Short-term investments, at cost (approximates market value) 1,255,234 1,255,234 1,255,234
------------- --------------- ---------------
Total investments $ 7,085,194 $ 7,181,989 $ 7,186,989
============= =============== ===============
|
* Original cost of equity securities and, as to fixed maturities,
original cost reduced by repayments and adjusted for amortization of
premiums and accrual of discounts
F-45
-----------------------------------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE II
-----------------------------------------------------------------------------------------------------------
BALANCE SHEETS - PARENT COMPANY ONLY
MAY 31, 2013 MAY 31, 2012
------------- -------------
Assets:
Cash $ (72,647) $ (22,407)
Accounts receivable from affiliates - -
Prepaid expense and other assets 81,389 83,864
Furniture and equipment, net 1,802 4,568
Investment in subsidiaries, equity method 5,586,388 5,907,389
Due from affiliates, net 320,300 555,000
------------- -------------
Total assets $ 5,917,232 $ 6,528,414
============= =============
LIABILITIES:
Accounts payable $ 27,673 $ 46,661
Accrued expenses and professional fees 527,064 367,572
Related party payable 394,444 310,644
Notes payable 4,587,482 4,836,000
Related party note payable 259,688 377,954
Due to affiliates - -
Other liabilities 2,668,993 1,972,588
Series A Preferred Stock 1,482,718 1,424,863
Series B Preferred Stock 4,990,463 4,610,224
------------- -------------
Total liabilities 14,938,525 13,946,506
MANDATORILY REDEEMABLE PREFERRED STOCK 1,916,330 1,841,555
STOCKHOLDERS EQUITY:
Common stock 32,211 27,035
Additional paid in capital 4,013,242 3,664,923
Series C Stock 11,245,447 10,330,112
Accumulated deficit (26,228,523) (23,281,717)
------------ -------------
Total stockholders equity (deficit) (10,937,623) (9,259,647)
------------ -------------
Total liabilities and stockholders equity $ 5,917,232 $ 6,528,414
============= =============
STATEMENTS OF INCOME - PARENT COMPANY ONLY
YEAR ENDED MAY 31,
2013 2012
------------ -------------
REVENUES
Equity in undistributed net income (loss) of consolidated subsidiaries $ (321,001) $ 109,064
Tax benefit to parent from subsidiary attributable to utilization of
net operating loss carryforwards 66,411 197,745
Dividends paid to parent from subsidiary 590,000 380,000
Gain on extinguishment of debt - 150,604
------------ -------------
Total revenues 335,410 837,413
EXPENSES:
General and administrative 777,909 668,238
Interest 1,073,338 905,601
Accrued dividends on stock liability 438,094 366,591
Depreciation 2,766 2,816
------------ -------------
Total expenses 2,292,107 1,943,246
------------ -------------
Net income (loss) (1,956,697) (1,105,833)
Accrued dividends on equity stock (915,335) (847,833)
Accretion of mandatorily redeemable convertible preferred stock,
including accrued dividends (74,774) (113,726)
------------ -------------
Net income (loss) attributable to common stockholders $ (2,946,806) $ (2,067,392)
============ =============
F-46
|
STATEMENTS OF CASH FLOWS - PARENT COMPANY ONLY
YEAR ENDED MAY 31,
2013 2012
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,956,697) $ (1,105,833)
Adjustments to reconcile net (loss) to net cash provided by operating
activities:
Equity in undistributed net loss of consolidated subsidiaries 321,001 (108,967)
Accrual of preferred stock dividend 438,094 366,339
Accretion of preferred stock - 251
Stock option compensation expense - 370
Stock issued in connection with financing arrangements 353,496 117,743
Depreciation 2,766 2,817
Loss on disposal of equipment - -
Gain on extinguishment of debt - (150,604)
Change in other assets, accounts payable and accrued expense, net 923,184 825,718
------------ -------------
TOTAL CASH USED IN OPERATIONS 81,844 (52,166)
CASH FLOWS FROM INVESTING ACTIVITIES:
Funds provided to affiliates for operations 234,700 122,801
Purchase of furniture and equipment - -
------------ -------------
TOTAL CASH USED IN INVESTING ACTIVITIES 234,700 122,801
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock warrants - -
Proceeds from borrowings 452,500 849,000
Repayment of borrowings (701,018) (887,500)
Proceeds from short-term borrowings from related party 1,310,924 1,124,925
Repayment of short-term borrowings to related party (1,429,190) (1,152,006)
------------ -------------
TOTAL CASH PROVIDED BY FINANCING ACTIVITIES (366,784) (65,581)
------------ -------------
CHANGE IN CASH (50,240) 5,054
Cash at beginning of year (22,407) (27,461)
------------ -------------
Cash at end of year $ (72,647) $ (22,407)
============ =============
|
F-47
------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTARY INSURANCE INFORMATION
AS OF MAY 31, 2013 AND 2012 AND FOR THE YEARS THEN ENDED SCHEDULE III
------------------------------------------------------------------------------------------------------------------------------------
RESERVE FOR
LOSSES OTHER AMORTIZATION
AND POLICY CLAIMS OF
DEFERRED LOSS EXPENSES, AND LOSSES AND DEFERRED
POLICY FUTURE CONTRACT NET SETTLEMENT POLICY OTHER NET
ACQUISITION POLICY UNEARNED CLAIMS PREMIUM INVESTMENT EXPENSES ACQUISITION OPERATING PREMIUMS
SEGMENT COSTS CLAIMS PREMIUMS PAYABLE REVENUE INCOME INCURRED COSTS EXPENSES WRITTEN
----------- ------------ ------------- --------- -------- ---------- ---------- ----------- ----------- ---------- ---------
2013
Surety $ 138,497 $ 1,207,903 $ 621,974 $ - $ 846,112 $ 230,373 $ 181,414 $ 267,587 $ - $ 646,309
------------------------------------------------------------------------------------------------------------------------------------
2012
Surety $ 167,010 $ 1,026,489 $ 771,089 $ - $1,169,897 $ 279,410 $ 210,977 $ 311,385 $ - $ 896,808
|
F-48
------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INSURANCE INFORMATION - REINSURANCE
AS OF MAY 31, 2013 AND 2012 AND FOR THE YEARS THEN ENDED SCHEDULE IV
------------------------------------------------------------------------------------------------------------------------------
CEDED TO OTHER
2013 GROSS AMOUNT COMPANIES NET AMOUNT
--------------------- ------------------- -------------------
Premiums written:
Property and casualty insurance $ 1,088,202 $ 441,893 $ 646,309
--------------------- ------------------- -------------------
Total premiums written $ 1,088,202 $ 441,893 $ 646,309
===================== =================== ===================
Premiums earned:
Property and casualty insurance $ 1,237,316 $ 489,205 $ 748,111
--------------------- ------------------- -------------------
Total premiums earned $ 1,237,316 $ 489,205 $ 748,111
===================== =================== ===================
CEDED TO OTHER
2012 GROSS AMOUNT COMPANIES NET AMOUNT
--------------------- ------------------- -------------------
Premiums written:
Property and casualty insurance $ 1,343,661 $ 446,853 $ 896,808
--------------------- ------------------- -------------------
Total premiums written $ 1,343,661 $ 446,853 $ 896,808
===================== =================== ===================
Premiums earned:
Property and casualty insurance $ 1,424,355 $ 467,739 $ 956,616
--------------------- ------------------- -------------------
Total premiums earned $ 1,424,355 $ 467,739 $ 956,616
===================== =================== ===================
|
F-49
JACOBS FINANCIAL GROUP, INC.
AND SUBSIDIARIES
------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION
AS OF MAY 31, 2013 AND 2012 AND FOR THE YEARS THEN ENDED SCHEDULE VI
------------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K
RESERVE
FOR
LOSSES CLAIMS, LOSSES
AND DISCOUNT AND SETTLEMENT AMORTIZATION
LOSS IF ANY, EXPENSES INCURRED OF
DEFERRED EXPENSES, DEDUCTED RELATED TO DEFERRED PAID CLAIMS
POLICY FUTURE IN NET POLICY AND CLAIMS NET
AFFILIATION WITH ACQUISITION POLICY COLUMN UNEARNED PREMIUM INVESTMENT CURRENT PRIOR ACQUISITION ADJUSTMENT PREMIUMS
REGISTRANT COSTS CLAIMS C PREMIUMS REVENUE INCOME YEAR YEARS COSTS EXPENSES WRITTEN
----------------- ----------- ---------- -------- --------- -------- ---------- --------- ------- --------- ----------- --------
2013
Consolidated
property-casualty
entities $138,497 $1,207,903 $ - $621,974 $ 748,111 $ 230,373 $ 181,414 $ - $ 267,587 $ - $ 646,309
------------------------------------------------------------------------------------------------------------------------------------
2012
Consolidated
property-casualty
entities $167,010 $1,026,489 $ - $771,089 $ 956,616 $ 279,410 $ 210,977 $ - $ 311,385 $ - $ 896,808
|
F-50