Midwest Holding Inc. and
Subsidiaries
Consolidated Balance Sheets
|
June 30,
2016
|
|
December
31, 2015
|
|
(unaudited)
|
|
|
Assets
|
|
|
|
|
|
|
|
Investments, available
-
for
-
sale, at fair value
|
|
|
|
|
|
|
|
Fixed
maturies (amortized cost: $24,400,678 and $24,279,231,
respectively)
|
$
|
24,354,666
|
|
|
$
|
23,271,277
|
|
Equity securities, at
cost
|
|
53,816
|
|
|
|
140,250
|
|
Real estate, held for
investment
|
|
523,749
|
|
|
|
529,769
|
|
Policy loans
|
|
393,492
|
|
|
|
420,775
|
|
Total
investments
|
|
25,325,723
|
|
|
|
24,362,071
|
|
Cash and cash
equivalents
|
|
3,214,086
|
|
|
|
1,192,336
|
|
Amounts recoverable from
reinsurers
|
|
11,859,279
|
|
|
|
12,212,656
|
|
Interest and dividends
due and accrued
|
|
261,206
|
|
|
|
264,791
|
|
Due premiums
|
|
636,734
|
|
|
|
640,073
|
|
Deferred acquisition
costs, net
|
|
2,649,927
|
|
|
|
2,765,063
|
|
Value of business
acquired, net
|
|
1,897,986
|
|
|
|
2,039,110
|
|
Intangible
assets
|
|
700,000
|
|
|
|
700,000
|
|
Goodwill
|
|
1,129,824
|
|
|
|
1,129,824
|
|
Property and equipment,
net
|
|
191,053
|
|
|
|
217,565
|
|
Assets associated with
business held for sale (see Note 3)
|
|
16,345,892
|
|
|
|
16,870,241
|
|
Other assets
|
|
1,141,958
|
|
|
|
532,674
|
|
Total
assets
|
$
|
65,353,668
|
|
|
$
|
62,926,404
|
|
Liabilities and Stockholders'
Equity
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Benefit
reserves
|
$
|
24,459,542
|
|
|
$
|
24,155,140
|
|
Policy claims
|
|
461,792
|
|
|
|
839,859
|
|
Deposit-type
contracts
|
|
15,165,556
|
|
|
|
13,897,421
|
|
Advance
premiums
|
|
56,481
|
|
|
|
57,699
|
|
Total policy
liabilities
|
|
40,143,371
|
|
|
|
38,950,119
|
|
Accounts payable and
accrued expenses
|
|
1,088,578
|
|
|
|
1,013,313
|
|
Liabilities associated
with business held for sale (see Note 3)
|
|
14,988,764
|
|
|
|
15,508,998
|
|
Surplus notes
|
|
550,000
|
|
|
|
550,000
|
|
Total
liabilities
|
|
56,770,713
|
|
|
|
56,022,430
|
|
Commitments and Contingencies (See Note
9)
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
Preferred stock, Series
A, $0.001 par value. Liquidation preference $6.00 per share.
|
|
|
|
|
Authorized
2,000,000 shares; issued and outstanding 74,159 shares
|
|
|
|
|
|
|
|
as
of June 30, 2016 and December 31, 2015.
|
|
74
|
|
|
|
74
|
|
Preferred stock, Series
B, $0.001 par value. Liquidation preference $6.00 per share.
|
|
|
|
|
Authorized
1,000,000 shares; issued and outstanding 102,669 shares
|
|
|
|
|
|
|
|
as
of June 30, 2016 and December 31, 2015.
|
|
103
|
|
|
|
103
|
|
Common stock, $0.001 par
value. Authorized 120,000,000 shares;
|
|
|
|
|
|
|
|
issued
and outstanding 22,558,956 as of June 30, 2016
|
|
|
|
|
|
|
|
and
18,006,301 shares as of December 31, 2015.
|
|
22,559
|
|
|
|
18,006
|
|
Additional paid-in capital
|
|
33,964,290
|
|
|
|
31,584,529
|
|
Accumulated deficit
|
|
(25,374,520
|
)
|
|
|
(23,685,525
|
)
|
Accumulated other comprehensive
loss
|
|
(29,551
|
)
|
|
|
(1,013,213
|
)
|
Tota
l s
tockholders' equity
|
|
8,582,955
|
|
|
|
6,903,974
|
|
Total
liabilities and stockholders' equity
|
$
|
65,353,668
|
|
|
$
|
62,926,404
|
|
See Notes to Consolidated
Financial Statements.
3
Midwest Holding Inc. and
Subsidiaries
Consolidated Statements of Comprehensive
Income
(Unaudited)
|
|
Three months ended June
30,
|
|
Six months ended June
30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
932,042
|
|
|
$
|
993,554
|
|
|
$
|
1,859,475
|
|
|
$
|
1,872,105
|
|
Investment income, net of
expenses
|
|
|
201,778
|
|
|
|
100,121
|
|
|
|
414,906
|
|
|
|
295,745
|
|
Net realized (loss) gain on
investments
|
|
|
(56,629
|
)
|
|
|
(74,543
|
)
|
|
|
(53,744
|
)
|
|
|
3,705
|
|
Miscellaneous income
|
|
|
13,250
|
|
|
|
44,392
|
|
|
|
63,557
|
|
|
|
99,244
|
|
|
|
|
1,090,441
|
|
|
|
1,063,524
|
|
|
|
2,284,194
|
|
|
|
2,270,799
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death and other
benefits
|
|
|
179,096
|
|
|
|
262,432
|
|
|
|
408,118
|
|
|
|
461,299
|
|
Interest
credited
|
|
|
182,395
|
|
|
|
126,246
|
|
|
|
352,989
|
|
|
|
255,598
|
|
Increase in benefit
reserves
|
|
|
224,644
|
|
|
|
247,927
|
|
|
|
391,669
|
|
|
|
498,551
|
|
Amortization of deferred
acquisition costs
|
|
|
25,233
|
|
|
|
123,503
|
|
|
|
147,727
|
|
|
|
253,850
|
|
Salaries and benefits
|
|
|
593,093
|
|
|
|
479,284
|
|
|
|
1,113,323
|
|
|
|
991,835
|
|
Other
operating expenses
|
|
|
806,055
|
|
|
|
647,217
|
|
|
|
1,559,363
|
|
|
|
1,412,871
|
|
|
|
|
2,010,516
|
|
|
|
1,886,609
|
|
|
|
3,973,189
|
|
|
|
3,874,004
|
|
Loss before income taxes
|
|
|
(920,075
|
)
|
|
|
(823,085
|
)
|
|
|
(1,688,995
|
)
|
|
|
(1,603,205
|
)
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
(920,075
|
)
|
|
|
(823,085
|
)
|
|
|
(1,688,995
|
)
|
|
|
(1,603,205
|
)
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
arising
during period
|
|
|
478,024
|
|
|
|
(646,053
|
)
|
|
|
929,918
|
|
|
|
(501,910
|
)
|
Less: reclassification
adjustment for net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
realized
losses (gains)
on investments
|
|
|
56,629
|
|
|
|
74,543
|
|
|
|
53,744
|
|
|
|
(3,705
|
)
|
Other comprehensive income
|
|
|
534,653
|
|
|
|
(571,510
|
)
|
|
|
983,662
|
|
|
|
(505,615
|
)
|
Comprehensive (loss)
|
|
$
|
(385,422
|
)
|
|
$
|
(1,394,595
|
)
|
|
$
|
(705,333
|
)
|
|
$
|
(2,108,820
|
)
|
Net loss per common share, basic and
diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.12
|
)
|
See Notes to Consolidated
Financial Statements.
4
Midwest Holding Inc. and
Subsidiaries
Consolidated Statements of Cash
Flows
(Unaudited)
|
Six Months
ended June 30,
|
|
2016
|
|
2015
|
Cash Flows from Operating
Activities:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(1,688,995
|
)
|
|
$
|
(1,603,205
|
)
|
Adjustments to reconcile
net loss to net cash and cash equivalents provided by
|
|
|
(used
in) operating activities:
|
|
|
|
|
|
|
|
Net
adjustment for premium and discount on investments
|
|
105,673
|
|
|
|
74,421
|
|
Depreciation
and amortization
|
|
208,235
|
|
|
|
196,192
|
|
Deferred
acquisition costs capitalized
|
|
(66,951
|
)
|
|
|
(453,647
|
)
|
Amortization
of deferred acquisition costs
|
|
147,727
|
|
|
|
253,850
|
|
Net
realized
loss
(gain) on investments
|
|
53,744
|
|
|
|
(4,768
|
)
|
Loss
from equity method investments
|
|
-
|
|
|
|
16,650
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Amounts
recoverable from reinsurers
|
|
353,377
|
|
|
|
388,325
|
|
Interest
and dividends due and accrued
|
|
3,585
|
|
|
|
(1,085
|
)
|
Due
premiums
|
|
3,339
|
|
|
|
522
|
|
Policy
liabilities
|
|
275,049
|
|
|
|
677,602
|
|
Other
assets and liabilities
|
|
(569,165
|
)
|
|
|
(202,324
|
)
|
Other
assets and liabilities held for sale
|
|
1,877
|
|
|
|
(76,993
|
)
|
Net
cash (used for) operating activities
|
|
(1,172,505
|
)
|
|
|
(734,460
|
)
|
Cash Flows from Investing
Activities:
|
|
|
|
|
|
|
|
Securities available for
sale:
|
|
|
|
|
|
|
|
Purchases
|
|
(7,878,585
|
)
|
|
|
(8,324,853
|
)
|
Proceeds
from sale or maturity
|
|
7,671,898
|
|
|
|
7,129,385
|
|
Securities held for
sale:
|
|
|
|
|
|
|
|
Purchases
|
|
-
|
|
|
|
(305,675
|
)
|
Proceeds
from sale or maturity
|
|
52,703
|
|
|
|
287,236
|
|
Net change in equity
securities carried at cost:
|
|
|
|
|
|
|
|
Proceeds
from sale or maturity
|
|
26,434
|
|
|
|
6,000
|
|
Proceeds from payments on
mortgage loans on real estate, held for investment
|
|
-
|
|
|
|
349,386
|
|
Acquisition of Northstar
Financial Corporation
|
|
2,427,394
|
|
|
|
-
|
|
Net change in policy
loans
|
|
27,283
|
|
|
|
(35,686
|
)
|
Purchases of property and
equipment
|
|
(29,515
|
)
|
|
|
(4,566
|
)
|
Net
cash provided by (used for) investing activities
|
|
2,297,612
|
|
|
|
(898,773
|
)
|
Cash Flows from Financing
Activities:
|
|
|
|
|
|
|
|
Issuance of common
stock
|
|
-
|
|
|
|
214,720
|
|
Preferred stock
dividend
|
|
(21,560
|
)
|
|
|
(34,497
|
)
|
Receipts on deposit-type
contracts
|
|
1,339,406
|
|
|
|
1,191,753
|
|
Withdrawals on
deposit-type contracts
|
|
(421,203
|
)
|
|
|
(288,496
|
)
|
Net
cash provided by financing activities
|
|
896,643
|
|
|
|
1,083,480
|
|
Net
increase
(decrease)
in cash and cash equivalents
|
|
2,021,750
|
|
|
|
(549,753
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
Beginning
|
|
1,192,336
|
|
|
|
2,310,047
|
|
Ending
|
$
|
3,214,086
|
|
|
$
|
1,760,294
|
|
See Notes to Consolidated
Financial Statements.
5
Midwest Holding Inc. and
Subsidiaries
Supplemental Cash Flow
Information
(Unaudited)
|
June 30,
2016
|
|
June 30, 2015
|
Supplemental Disclosure of Non-Cash
Information
|
|
|
|
|
|
Common stock issued on
Northstar Acquisition
|
$
|
2,405,874
|
|
$
|
-
|
|
$
|
2,405,874
|
|
$
|
1,811,612
|
See Notes to Consolidated
Financial Statements.
6
Midwest Holding Inc. and
Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of
Operations and Summary of Significant Accounting Policies
Nature of
operations:
Midwest Holding Inc.
and its wholly owned subsidiaries (Midwest or the Company, which also may be
referred to as we, our or us) operate multiple insurance businesses
through one business segment. These insurance companies are: American Life &
Security Corporation (American Life), Capital Reserve Life Insurance Company
(Capital Reserve), First Wyoming Life Insurance Company (First Wyoming Life)
and Great Plains Life Assurance Company (Great Plains). Through these
insurance companies we sell traditional, non-traditional and multi-benefit life
insurance policies.
Basis of presentation:
The accompanying unaudited
consolidated financial statements have been prepared in accordance with United
States of America generally accepted accounting principles (GAAP) for interim
financial information and with the instructions from the Securities and Exchange
Commission (SEC) Quarterly Report on Form 10-Q, including Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by GAAP for complete financial statements. Therefore, the
information contained in the Notes to Consolidated Financial Statements included
in the Companys Annual Report on Form 10-K for the year ended December 31, 2105
(2015 Form 10-K), should be read in connection with the reading of these
interim unaudited consolidated financial statements.
In the opinion of
management, these statements include all normal recurring adjustments necessary
for a fair presentation of the Companys results. Operating results for the six
month period ended June 30, 2016, are not necessarily indicative of the results
that may be expected for the full year ending December 31, 2016. All material
inter-company accounts and transactions have been eliminated in
consolidation
.
Investments:
All fixed maturities and a
portion of the equity securities owned by the Company are considered
available-for-sale and are included in the consolidated financial statements at
their fair value as of the financial statement date. Bond premiums and discounts
are amortized using the scientific-yield method (calculated by multiplying the
adjusted basis by the yield at issuance and then subtracting the coupon
interest) over the term of the bonds. Realized gains and losses on securities
sold during the year are determined by the specific security sold. Unrealized
holding gains and losses, net of applicable income taxes, are included in
comprehensive loss.
Declines in the fair value
of available for sale securities below their amortized cost are evaluated to
assess whether any other-than-temporary impairment loss should be recorded. In
determining if these losses are expected to be other-than-temporary, we consider
severity of impairment, duration of impairment, forecasted recovery period,
industry outlook, financial condition of the issuer, issuer credit ratings and
the intent and ability of us to hold the investment until the recovery of the
cost.
The recognition of
other-than-temporary impairment losses on debt securities is dependent on the
facts and circumstances related to the specific security. If the Company intends
to sell a security or it is more likely than not that the Company would be
required to sell a security prior to recovery of the amortized cost, the
difference between amortized cost and fair value is recognized in the statement
of comprehensive income as an other-than-temporary impairment. If the Company
does not expect to recover the amortized basis, does not plan to sell the
security and if it is not more likely than not that the Company would be
required to sell a security before the recovery of its amortized cost, the
recognition of the other-than-temporary impairment is bifurcated. The Company
recognizes the credit loss portion in the income statement and the noncredit
loss portion in accumulated other comprehensive loss. The credit component of
the other-than-temporary impairment is determined by comparing the net present
value of projected cash flows with the amortized cost basis of the debt
security. The net present value is calculated by discounting the Companys best
estimate of projected future cash flows at the effective interest rate implicit
in the fixed income security at the date of acquisition. Cash flow estimates are
driven by assumptions regarding probability of default, including changes in
credit ratings, and estimates regarding timing and amount of recoveries
associated with a default. No other-than-temporary impairments were recognized
during the six months ended June 30, 2016 or 2015.
Investment income consists
of interest, dividends, gains and losses from equity method investments, and
real estate income, which are recognized on an accrual basis and amortization of
premiums and discounts.
7
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Included within the
Companys equity securities are certain privately purchased common stocks. These
investments are recorded using the cost basis method of accounting. These
securities do not have a readily determinable fair value. The Company does not
control these entities economically, and therefore does not consolidate these
entities in its financial statements.
Policy
loans:
Policy loans are carried
at unpaid principal balances. Interest income on policy loans is recognized in
net investment income at the contract interest rate when earned. No valuation
allowance is established for these policy loans as the amount of the loan is
fully secured by the death benefit of the policy and cash surrender
value.
Real estate, held for investment:
Real estate, held for investment is comprised of
ten condominiums in Hawaii. Real estate is carried at depreciated cost.
Depreciation on residential real estate is computed on a straight-line basis
over 50 years.
Cash and cash
equivalents:
The Company
considers all liquid investments with original maturities of three months or
less when purchased to be cash equivalents. At June 30, 2016 and December 31,
2015, the Company had no cash equivalents. The Company has cash on deposit with
financial institutions which at times may exceed the Federal Deposit Insurance
Corporation insurance limits. The Company has not suffered any losses in the
past and does not believe it is exposed to any significant credit risk in these
balances.
Deferred acquisition
costs:
Deferred acquisition costs
consist of incremental direct costs, net of amounts ceded to reinsurers, that
result directly from and are essential to the contract acquisition transaction
and would not have been incurred by the Company had the contract acquisition not
occurred. These costs are capitalized, to the extent recoverable, and amortized
over the life of the premiums produced. The Company evaluates the types of
acquisition costs it capitalizes. The Company capitalizes agent compensation and
benefits and other expenses that are directly related to the successful
acquisition of contracts. The Company also capitalizes expenses directly related
to activities performed by the Company, such as underwriting, policy issuance,
and processing fees incurred in connection with successful contract
acquisitions.
Recoverability of deferred
acquisition costs is evaluated periodically by comparing the current estimate of
the present value of expected pretax future profits to the unamortized asset
balance. If this current estimate is less than the existing balance, the
difference is charged to expense. The Company performs a recoverability analysis
annually in the fourth quarter of its fiscal year unless events occur which
require an immediate review. The Company determined during its December 31, 2015
analysis that all deferred acquisition costs were recoverable.
The following table
provides information about deferred acquisition costs for the periods ended June
30, 2016 and December 31, 2015, respectively.
|
Six
Months Ended
|
|
Year
Ended
|
|
June 30,
|
|
December 31,
|
|
2016
|
|
2015
|
Balance at beginning of period
|
$
|
2,765,063
|
|
|
$
|
2,646,970
|
|
Capitalization of commissions, sales and issue
expenses
|
|
66,951
|
|
|
|
552,466
|
|
Change in DAC due to unrealized investment
(gains) losses
|
|
(34,360
|
)
|
|
|
35,301
|
|
Gross amortization
|
|
(147,727
|
)
|
|
|
(469,674
|
)
|
Balance at end of period
|
$
|
2,649,927
|
|
|
$
|
2,765,063
|
|
8
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
V
alue of business acquired:
Value of business acquired represents the
estimated value assigned to purchased companies or insurance in force of the
assumed policy obligations at the date of acquisition of a block of policies.
American Life purchased Capital Reserve during 2010, resulting in an initial
capitalized asset for value of business acquired of $116,326. Additionally, the
Company paid an upfront ceding commission of $375,000 to Security National Life
(SNL) in respect of the purchase of Capital Reserve. An initial asset was
established for the value of this business acquired totaling $348,010,
representing primarily the ceding commission. The agreement has an automatic
renewal provision unless the Company notifies SNL of its intention not to renew,
no less than 180 days prior to the expiration of the then current agreement.
Each automatic renewal period is for one year. This reinsurance remains in
place. The remaining capitalized and SNL asset balances at June 30, 2016, of
$43,622 and $130,504, respectively, will be included in the accounting for the
anticipated sale of Capital Reserve
in the second half of 2016
. Midwest acquired Great Plains
Financial in 2014 and established an asset for value of business acquired of
$1,288,207. Midwest acquired First Wyoming Capital during 2015 and established
an asset for value of business acquired of $506,600. These assets are being
amortized on a straight-line basis, which approximates the earnings pattern of
the related policies, over ten years.
The accounting for the First Wyoming acquisition is still preliminary and is expected to be final in the third quarter of 2016.
The Company recognized amortization
expense of $56,478 and $43,814 for the three months ended June 30, 2016 and
2015, respectively relative to these transactions. The Company recognized
amortization expense of $112,957 and $87,627 for the six months ended June 30,
2016 and 2015, respectively related to these transactions.
Additionally, American Life
purchased Old Reliance in August 2011, resulting in an initial capitalized asset
for value of business acquired of $824,485. This asset is being amortized over
the life of the related policies (refer to revenue recognition and related
expenses discussed later regarding amortization methods). Amortization
recognized during the three months ended June 30, 2016 totaled $13,135 and the
accretion recognized during the three months ended June 30, 2015 totaled $653.
Amortization recognized during the six months ended June 30, 2016 and 2015
totaled $28,166 and $99, respectively.
Recoverability of value of
business acquired is evaluated periodically by comparing the current estimate of
the present value of expected pretax future profits to the unamortized asset
balance. If this current estimate is less than the existing balance, the
difference is charged to expense. If this current estimate is less than the
existing balance, the difference is charged to expense. Management has
determined that no events occurred in the six months ended June 30, 2016 that
suggest a review should be undertaken.
Goodwill and Other
Intangible Assets:
Goodwill
represents the excess of the amounts paid to acquire subsidiaries and other
businesses over the fair value of their net assets at the date of acquisition.
Goodwill is tested for impairment at least annually in the fourth quarter or
more frequently if events or circumstances change that would indicate that a
triggering event has occurred. Management has determined that no events occurred
in the six months ended June 30, 2016 that suggest a review should be
undertaken.
The Company assesses the
recoverability of indefinite-lived intangible assets at least annually or
whenever events or circumstances suggest that the carrying value of an
identifiable indefinite-lived intangible asset may exceed the sum of the future
discounted cash flows expected to result from its use and eventual disposition.
If the asset is considered to be impaired, the amount of any impairment is
measured as the difference between the carrying value and the fair value of the
impaired asset. Management has determined that no events occurred in the six
months ended June 30, 2016 that suggest a review should be
undertaken.
Property and equipment:
Property and equipment are stated
at cost net of accumulated depreciation. Annual depreciation is primarily
computed using straight-line methods for financial reporting and straight-line
and accelerated methods for tax purposes. Furniture and equipment is depreciated
over 3 to 7 years and computer software and equipment is generally depreciated
over 3 years. Depreciation expense totaled $25,601 and $40,342 for the three
months ended June 30, 2016 and 2015, respectively. Depreciation expense totaled
$61,091 and 82,834 for the six months ended June 30, 2016 and 2015,
respectively. Accumulated depreciation totaled $925,617 and $864,526 as of June
30, 2016 and December 31, 2015, respectively.
Maintenance and repairs are
expensed as incurred. Replacements and improvements which extend the useful life
of the asset are capitalized. The net book value of assets sold or retired are
removed from the accounts, and any resulting gain or loss is reflected in
earnings.
9
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss is
recognized if the carrying amount of an asset may not be recoverable and exceeds
estimated future undiscounted cash flows of the asset. A recognized impairment
loss reduces the carrying amount of the asset to its fair value. Management has
determined that no such events occurred in the six months ended June 30, 2016
that would indicate the carrying amounts may not be recoverable.
Reinsurance:
In the normal course of business,
the Company seeks to limit any single exposure to losses on large risks by
purchasing reinsurance. The amounts reported in the consolidated balance sheets
as reinsurance recoverable include amounts billed to reinsurers on losses paid
as well as estimates of amounts expected to be recovered from reinsurers on
insurance liabilities that have not yet been paid. Reinsurance recoverable on
unpaid losses are estimated based upon assumptions consistent with those used in
establishing the liabilities related to the underlying reinsured contracts.
Insurance liabilities are reported gross of reinsurance recoverable. Management
believes the recoverables are appropriately established. The Company generally
strives to diversify its credit risks related to reinsurance ceded. Reinsurance
premiums are generally reflected in income in a manner consistent with the
recognition of premiums on the reinsured contracts. Reinsurance does not
extinguish the Companys primary liability under the policies written.
Therefore, the Company regularly evaluates the financial condition of its
reinsurers including their activities with respect to claim settlement practices
and commutations, and establishes allowances for uncollectible reinsurance
recoverable as appropriate. There were no allowances as of June 30, 2016 or
December 31, 2015.
Benefit reserves:
The Company establishes
liabilities for amounts payable under insurance policies, including traditional
life insurance and annuities. Generally, amounts are payable over an extended
period of time. Liabilities for future policy benefits of traditional life
insurance have been computed by a net level premium method based upon estimates
at the time of issue for investment yields, mortality and withdrawals. These
estimates include provisions for experience less favorable than initially
expected. Mortality assumptions are based on industry experience expressed as a
percentage of standard mortality tables.
Policy claims:
Policy claims are based on
reported claims plus estimated incurred but not reported claims developed from
trends of historical data applied to current exposure.
Deposit-type contracts:
Deposit-type contracts consist of
amounts on deposit associated with deferred annuity riders, premium deposit
funds and supplemental contracts without life contingencies.
Income taxes:
The Company is subject to income
taxes in the U.S. federal and various state jurisdictions. Tax regulations
within each jurisdiction are subject to the interpretation of the related tax
laws and regulations and require significant judgment to apply. With few
exceptions, the Company is no longer subject to U.S. federal, state or local tax
examinations by tax authorities for the years before 2010. The provision for
income taxes is based on income as reported in the financial statements. The
income tax provision is calculated under the asset and liability method.
Deferred tax assets are recorded based on the differences between the financial
statement and tax basis of assets and liabilities at the enacted tax rates. The
principal assets and liabilities giving rise to such differences are
investments, insurance reserves, and deferred acquisition costs. A deferred tax
asset valuation allowance is established when there is uncertainty that such
assets would be realized. The Company has no uncertain tax positions that it
believes are more-likely-than not that the benefit will not to be realized. When
applicable, the Company recognizes interest accrued related to unrecognized tax
benefits and penalties in income tax expense. The Company had no accruals for
payments of interest and penalties at June 30, 2016 and December 31,
2015.
Revenue recognition and
related expenses:
Revenues on
traditional life insurance products consist of direct and assumed premiums
reported as earned when due.
Amounts received as payment
for annuities and/or non-traditional contracts such as interest sensitive whole
life contracts, single payment endowment contracts, single payment juvenile
contracts and other contracts without life contingencies are recognized as
deposits to policyholder account balances and included in future insurance
policy benefits. Revenues from these contracts are comprised of fees earned for
administrative and contract-holder services and cost of insurance, which are
recognized over the period of the contracts, and included in revenue. Deposits
are shown as a financing activity in the Consolidated Statements of Cash
Flows.
10
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Amounts received under our
multi-benefit policy form are allocated to the life insurance portion of the
multi-benefit life insurance arrangement and the annuity portion based upon the
signed policy.
Liabilities for future
policy benefits are provided and acquisition costs are amortized by associating
benefits and expenses with earned premiums to recognize related profits over the
life of the contracts. Acquisition costs are amortized over the premium paying
period using the net level premium method. Traditional life insurance products
are treated as long duration contracts, which generally remain in force for the
lifetime of the insured.
Comprehensive loss:
Comprehensive loss is comprised
of net loss and other comprehensive income (loss). Other comprehensive income
(loss) includes unrealized gains and losses from marketable securities
classified as
available-for-sale
, net of applicable taxes.
Common and preferred
stock and earnings (loss) per share:
The par value per common share is $0.001 with 100,000,000 shares
authorized and 20,000,000 preferred shares authorized. At June 30, 2016 and
December 31, 2015, the Company had 22,558,956 and 18,006,301 common shares
issued and outstanding, respectively.
At June 30, 2016 and
December 31, 2015, the Company had 1,179 warrants outstanding. The warrants are
exercisable through December 31, 2016 for 10 shares of voting common stock at an
exercise price of $6.50 per share.
The Class A preferred
shares are non-cumulative, non-voting and convertible by the holder to voting
common shares after May 2015, at a rate of 1.3 common shares for each preferred
share (subject to customary anti-dilution adjustments). There is no stated
dividend rate on the Class A shares, but the holders of Class A shares will
receive a dividend on each outstanding share of Class A preferred stock in an
amount equal to the amount of the dividend payable on each share of common
stock. The par value per preferred Class A share is $0.001 with 2,000,000 shares
authorized. At June 30, 2016 and December 31, 2015, the Company had 74,159 Class
A preferred shares issued and outstanding.
The Class B preferred
shares are non-cumulative, non-voting and convertible by the holder to voting
common shares after May 1, 2017 at a rate of 2.0 common shares for each
preferred share. The Company may only affect a conversion through a deemed
liquidation or initial public offering. The par value per preferred Class B
share is $0.001 with 1,000,000 shares authorized. The stated dividend rate on
the Class B preferred shares is
7%. Dividends
of $21,560 and $56,057 were paid as of June 30, 2016 and December 31,
2015 respectively. At June 30, 2016, and December 31, 2015, the Company had
102,669 Class B preferred shares issued and outstanding.
Earnings (loss) per share
attributable to the Companys common stockholders were computed based on the
weighted average number of shares outstanding during each period. The weighted
average number of shares outstanding during the three months ended June 30, 2016
and 2015 were 22,558,956 and 13,212,653 shares, respectively. The weighted
average number of shares outstanding during the six months ended June 30, 2016
and 2015 were 20,682,546 and 13,195,416 shares, respectively.
Risk and uncertainties:
Certain risks and uncertainties
are inherent in our day-to-day operations and in the process of preparing our
consolidated financial statements. The more significant of those risks and
uncertainties, as well as the Companys method for mitigating the risks, can be
referenced in the Notes to Consolidated Financial Statements included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2105 (2015
Form 10-K), and should be read in connection with the reading of these interim
unaudited consolidated financial statements.
New accounting standards:
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13,
Financial Instruments - Credit Losses (Topic 326).
Under the new guidance, this replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to perform credit loss estimates. This update changes the methodology from an incurred loss to an expected credit loss. An allowance for the expected credit loss will be set up and the net income will be impacted. The credit losses will be evaluated in the current period and an adjustment to the allowance can be made. The new standard becomes effective after December 15, 2019. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.
11
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
In March 2016, the FASB
issued ASU 2016-07,
Investments
Equity Method and Joint Ventures (Topic323).
Under the new guidance, when an investment
qualifies for use of the equity method as a result of an increase in the level
of ownership interest or degree of influence, requires that the equity method
investor add the cost of acquiring the additional interest in the investee to
the current basis of the investors previously held interest and adopt the
equity method of accounting as of the date the investment becomes qualified for
equity method accounting. Therefore, upon qualifying for the equity method of
accounting, no retroactive adjustment of the investment is required. The new
standard becomes effective December 15, 2016. Early adoption of this update is
permitted and we will adopt this Update should an investment change from the
cost method to the equity method due to a change in ownership or degree of
influence.
In February 2016, the FASB
issued ASU 2016-02,
Leases (Topic
842)
. The guidance in this ASU
supersedes the leasing guidance in Topic 840,
Leases
. Under the new guidance, lessees are required to recognize lease assets
and lease liabilities on the balance sheet for all leases with terms longer than
12 months. Leases will be classified as either finance or operating, with
classification affecting the pattern of expense recognition in the income
statement. The new standard is effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. A
modified retrospective transition approach is required for lessees for capital
and operating leases existing at, or entered into after, the beginning of the
earliest comparative period presented in the financial statements, with certain
practical expedients available. We are currently evaluating the impact of our
pending adoption of the new standard on our consolidated financial
statements.
In January 2016, the FASB
issued ASU 2016-1,
Financial
InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities.
This guidance changes how entities account for equity investments that do
not result in
consolidation
and are not accounted for under the equity method of
accounting. Entities will be required to measure these investments at fair value
at the end of each reporting period and recognize changes in fair value in net
income. A practicability exception will be available for equity investments that
do not have readily determinable fair values; however; the exception requires
the Company to adjust the carrying amount for impairment and observable price
changes in orderly transactions for the identical or a similar investment of the
same issuer. This guidance also changes certain disclosure requirements and
other aspects of
current GAAP
. This guidance is effective for fiscal years
beginning after December 15, 2017, and is applicable to the Company in fiscal
2018. The Company is currently evaluating the impact of the adoption of ASU
2016-01 on its consolidated financial statements.
Note 2. Acquisitions
On March 15, 2016, Midwest
acquired Northstar Financial Corporation (Northstar), an inactive Minnesota
corporation, pursuant to an Agreement and Plan of Merger dated December 18,
2015, under which Midwest Acquisition Minnesota, Inc. (Acquisition) a wholly
owned subsidiary of Midwest merged (the Merger) with and into Northstar, with
Northstar being the survivor. Pursuant to the Merger, Midwest exchanged 1.27
shares of its voting common stock for each share of Northstar common stock, or
approximately 4,553,000
shares.
We are treating the merger
of Northstar into Midwest as an asset acquisition. The assets (primarily cash)
and liabilities of Northstar were recorded in the Companys consolidated
financial statements at their estimated fair values as of the acquisition
date.
12
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
On October 27, 2015,
Midwest acquired 100% of the remaining outstanding shares of First Wyoming, a
Wyoming corporation, that it did not previously own pursuant to an Agreement and
Plan of Merger dated July 31, 2015. The accounting for this acquisition is still
preliminary. The fair value of the Midwest common stock issued as consideration,
the fair value of our previously held equity interest in First Wyoming, and the
assets acquired and liabilities assumed from our acquisition of First Wyoming
was based on a preliminary valuation and our estimates and assumptions are
subject to change within the measurement period
of approximately twelve months
. The primary areas that are not
yet finalized are related to the fair value of Midwest common stock issued, the
fair value of our previously held equity interest in First Wyoming, and the fair
value of
Value of Business Acquired (VOBA)
. Measurement period adjustments will be applied to the period that
the adjustment is identified in our consolidated financial
statements
.
The following table presents unaudited pro forma consolidated total
income and net loss as if the acquisition had occurred as of January 1, 2015.
|
Three months ended
|
|
Six
months ended
|
|
June 30, 2015
|
|
June 30, 2015
|
|
(unaudited)
|
|
(unaudited)
|
Premiums
|
$
|
1,101,124
|
|
|
$
|
2,094,691
|
|
Investment income
|
|
99,727
|
|
|
|
361,485
|
|
Miscellaneous income
|
|
5,872
|
|
|
|
34,750
|
|
Total income
|
$
|
1,206,723
|
|
|
$
|
2,490,926
|
|
|
Net
loss
|
$
|
(1,017,758
|
)
|
|
$
|
(2,018,728
|
)
|
The unaudited pro forma
total income and net loss above was adjusted to eliminate the equity method
investment loss of $55,711 for the three months ended June 30, 2015 and a loss
of $16,650 for the six months ended June 30, 2015. The elimination of TPA fees
paid by First Wyoming to Midwest of $38,620 for the three months ended June 30,
2015 and of $64,594 for the six months ended June 30, 2015. The unaudited pro
forma net loss presented above also includes adjustments for the amortization of
VOBA for the three months ended June 30, 2015 of $12,665 and for the six months
ended June 30, 2015 of $25,330.
Note 3. Assets and
Liabilities Held for Sale
In December, 2015, American
Life entered into a purchase agreement with an outside third party to sell its
interest in Capital Reserve Life Insurance Company (Capital Reserve), which is
dormant.
Under the terms of the purchase agreement, American Life will receive cash which approximates the statutory surplus of Capital Reserve. American Life does not anticipate any gain or loss from this transaction to be significant.
The sale of Capital Reserve is subject to insurance regulatory
approval.
As of June 30, 2016 and
December 31, 2015, Midwest classified $16.3 million and $16.9 million,
respectively, of assets related to Capital Reserve as a business held-for-sale
within total assets and $15.0 million and $15.5 million, respectively, of
liabilities related to Capital Reserve as a business held-for-sale within total
liabilities on the Consolidated Balance Sheet. The held for sale assets are
primarily comprised of amounts recoverable from reinsurers, and the held for
sale liabilities are primarily comprised of benefit reserves and deposit-type
contracts.
Closing is expected in the fourth quarter 2016.
Note 4.
Investments
See Note 1 in our 2015 Form
10-K for information regarding our accounting policy relating to
available
-
for
-
sale
(AFS) securities, which also includes additional
disclosures regarding our fair value measurements.
13
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
The cost or amortized cost
and estimated fair value of investments classified as available-for-sale as of
June 30, 2016 and December 31, 2015 are as follows:
|
|
Cost or
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Estimated
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair
Value
|
June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government obligations
|
|
$
|
4,206,158
|
|
$
|
74,749
|
|
$
|
109
|
|
$
|
4,280,798
|
States
and political subdivisions -- general obligations
|
|
|
721,784
|
|
$
|
12,883
|
|
|
-
|
|
|
734,667
|
States
and political subdivisions -- special revenue
|
|
|
275,307
|
|
$
|
16,675
|
|
|
-
|
|
|
291,982
|
Corporate
|
|
|
19,197,429
|
|
$
|
144,454
|
|
|
294,664
|
|
|
19,047,219
|
Total fixed
maturities
|
|
$
|
24,400,678
|
|
$
|
248,761
|
|
$
|
294,773
|
|
$
|
24,354,666
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government obligations
|
|
$
|
3,256,704
|
|
$
|
6,610
|
|
$
|
69,815
|
|
$
|
3,193,499
|
States
and political subdivisions -- general obligations
|
|
|
1,001,993
|
|
|
-
|
|
|
6,942
|
|
|
995,051
|
States
and political subdivisions -- special revenue
|
|
|
275,333
|
|
|
-
|
|
|
1,997
|
|
|
273,336
|
Corporate
|
|
|
19,745,201
|
|
|
1,468
|
|
|
937,278
|
|
|
18,809,391
|
Total fixed
maturities
|
|
$
|
24,279,231
|
|
$
|
8,078
|
|
$
|
1,016,032
|
|
$
|
23,271,277
|
The Company has six
securities that individually exceed 10% of the total of the state and political
subdivisions categories as of June 30, 2016. The amortized cost, fair value,
credit ratings, and description of the security is as follows:
|
|
Amortized
|
|
Estimated
|
|
|
|
|
Cost
|
|
Fair
Value
|
|
Credit
Rating
|
June 30, 2016:
|
|
|
|
|
|
|
|
|
Fixed
maturities:
|
|
|
|
|
|
|
|
|
States
and political subdivisions -- general obligations
|
|
|
|
|
|
|
|
|
Bellingham
Wash
|
|
$
|
111,501
|
|
$
|
116,242
|
|
AA+
|
Longview
Washington Refunding
|
|
|
164,760
|
|
|
168,273
|
|
NR
|
Memphis
Tenn
|
|
|
110,3
69
|
|
|
114,872
|
|
AA
|
Maricopa
County Arizona School District No. 31
|
|
|
335,154
|
|
|
335,280
|
|
AA
|
States
and political subdivisions -- special revenue
|
|
|
|
|
|
|
|
|
Philadelphia
PA Auth For Indl Dev City Svc Agreem
|
|
|
149,385
|
|
|
155,741
|
|
AA
|
Riviera
Beach FLA Pub Impt Rev
|
|
|
100,407
|
|
|
110,485
|
|
AA
|
Total
|
|
$
|
971,57
6
|
|
$
|
1,000,893
|
|
|
14
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
The following table
summarizes, for all securities in an unrealized loss position at June 30, 2016
and December 31, 2015, the estimated fair value, pre-tax gross unrealized loss
and number of securities by length of time that those securities have been
continuously in an unrealized loss position.
|
|
June 30,
2016
|
|
December
31, 2015
|
|
|
|
|
Gross
|
|
Number
|
|
|
|
|
Gross
|
|
Number
|
|
|
Estimated
|
|
Unrealized
|
|
of
|
|
Estimated
|
|
Unrealized
|
|
of
|
|
|
Fair
Value
|
|
Loss
|
|
Securities
|
|
Fair
Value
|
|
Loss
|
|
Securities
|
Fixed Maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
obligations
|
|
$
|
8,299
|
|
$
|
109
|
|
1
|
|
$
|
2,484,188
|
|
$
|
62,343
|
|
14
|
States and political
subdivisions --
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
general
obligations
|
|
|
-
|
|
|
-
|
|
-
|
|
|
660,569
|
|
|
5,004
|
|
5
|
States and political
subdivisions --
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
special
revenue
|
|
|
-
|
|
|
-
|
|
-
|
|
|
248,146
|
|
|
1,618
|
|
2
|
Corporate
|
|
|
3,824,751
|
|
|
44,670
|
|
18
|
|
|
15,320,916
|
|
|
796,204
|
|
97
|
Greater than 12 months:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
obligations
|
|
|
-
|
|
|
-
|
|
-
|
|
|
305,055
|
|
|
7,472
|
|
3
|
States and political
subdivisions --
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
general
obligations
|
|
|
-
|
|
|
-
|
|
-
|
|
|
334,481
|
|
|
1,938
|
|
1
|
States and political
subdivisions --
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
special
revenue
|
|
|
-
|
|
|
-
|
|
-
|
|
|
25,190
|
|
|
379
|
|
1
|
Corporate
|
|
|
7,633,585
|
|
|
249,994
|
|
36
|
|
|
3,166,108
|
|
|
141,074
|
|
22
|
Total fixed maturities
|
|
$
|
11,466,585
|
|
$
|
294,773
|
|
55
|
|
$
|
22,544,653
|
|
$
|
1,016,032
|
|
145
|
Based on our review of the
securities in an unrealized loss position at June 30, 2016 and December 31,
2015, no other-than-temporary impairments were deemed necessary. Management
believes that the Company will fully recover its cost basis in the securities
held at June 30, 2016, and management does not have the intent to sell nor is it
more likely than not that the Company will be required to sell such securities
until they recover or mature. The temporary impairments shown herein are
primarily the result of the current interest rate environment rather than credit
factors that would imply other-than-temporary impairment.
The amortized cost and
estimated fair value of fixed maturities at June 30, 2016, by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because issuers may have the right to call or prepay obligations with
or without call or prepayment penalties.
|
Amortized
|
|
Estimated
|
|
Cost
|
|
Fair Value
|
Due
in one year or less
|
$
|
-
|
|
$
|
-
|
Due
after one year through five years
|
|
2,067,384
|
|
|
2,093,965
|
Due
after five years through ten years
|
|
13,563,010
|
|
|
13,513,005
|
Due
after ten years
|
|
8,770,284
|
|
|
6,747,696
|
|
$
|
24,400,678
|
|
$
|
24,354,666
|
15
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
The Company is required to
hold assets on deposit for the benefit of policyholders in accordance with
statutory rules and regulations. At June 30, 2016 and December 31, 2015, these
required deposits had a total amortized cost of
$7,701,787
and $6,186,865 and
fair values of
$7,759,577
and $6,000,376, respectively.
The components of net
investment income for the three and six months ended June 30, 2016 and 2015 are
as follows:
|
|
Three months ended June
30,
|
|
Six months ended June
30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Fixed maturities
|
|
$
|
207,495
|
|
|
$
|
161,652
|
|
|
$
|
417,151
|
|
|
$
|
320,615
|
|
Equity securities
|
|
|
-
|
|
|
|
162
|
|
|
|
5,250
|
|
|
|
186
|
|
Cash
and short-term investments
|
|
|
1
|
|
|
|
1
|
|
|
|
5
|
|
|
|
2
|
|
Loss
for equity method investments
|
|
|
-
|
|
|
|
(55,711
|
)
|
|
|
-
|
|
|
|
(16,650
|
)
|
Other
|
|
|
15,627
|
|
|
|
15,799
|
|
|
|
27,282
|
|
|
|
30,416
|
|
|
|
|
223,123
|
|
|
|
121,903
|
|
|
|
449,688
|
|
|
|
334,569
|
|
Less
investment expenses
|
|
|
(21,345
|
)
|
|
|
(21,782
|
)
|
|
|
(34,782
|
)
|
|
|
(38,824
|
)
|
|
|
$
|
201,778
|
|
|
$
|
100,121
|
|
|
$
|
414,906
|
|
|
$
|
295,745
|
|
Proceeds for the three
months ended June 30, 2016 and 2015 from sales of investments classified as
available-for-sale were $3,897,138 and $2,840,976, respectively. Gross gains of
$45,897 and $14,613 and gross losses of $35,026 and $89,156 were realized on
those sales during the three months ended June 30, 2016 and 2015,
respectively.
Proceeds for the six months ended June 30, 2016
and 2015 from sales of investments classified as available-for-sale were
$7,516,601 and $7,166,021, respectively. Gross gains of $69,653 and $118,401 and
gross losses of $55,897 and $114,696 were realized on those sales during the six
months ended June 30, 2016 and 2015, respectively.
As of June 30, 2016, all
mortgage loans were sold. The following table summarizes the activity in the
mortgage loans on real estate, held for investment account for the periods ended
June 30, 2016 and December 31, 2015.
|
Six
months ended
|
|
Year ended
|
|
June 30,
2016
|
|
December
31, 2015
|
Balance at beginning of period
|
$
|
-
|
|
$
|
349,386
|
|
Proceeds from settlement on mortgage loans
on real estate, held for investment
|
|
-
|
|
|
(349,386
|
)
|
Balance at end of period
|
$
|
-
|
|
$
|
-
|
|
Note 5. Fair Values of
Financial Instruments
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. We use valuation techniques
that are consistent with the market approach, the income approach and/or the
cost approach. Inputs to valuation techniques refer to the assumptions that
market participants would use in pricing the asset or liability. Inputs may be
observable, meaning those that reflect the assumptions market participants would
use in pricing the asset or liability developed based on market data obtained
from independent sources, or unobservable, meaning those that reflect the
reporting entitys own assumptions about the assumptions market participants
would use in pricing the asset or liability developed based on the best
information available in the circumstances. In that regard, accounting standards
establish a fair value hierarchy for valuation inputs that gives the highest
priority to quoted prices in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. The fair value hierarchy is as
follows:
●
|
Level 1:
Quoted prices (unadjusted) for identical assets or liabilities in active
markets that the entity has the ability to access as of the measurement
date.
|
●
|
Level 2: Significant other observable inputs
other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data.
|
●
|
Level 3: Significant unobservable inputs
that reflect a reporting entitys own assumptions about the assumptions
that market participants would use in pricing an asset or
liability.
|
16
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
A review of fair value
hierarchy classifications is conducted on a quarterly basis. Changes in the
valuation inputs, or their ability to be observed, may result in a
reclassification for certain financial assets or liabilities. Reclassifications
impacting Level 3 of the fair value hierarchy are reported as transfers in/out
of the Level 3 category as of the beginning of the period in which the
reclassifications occur.
A description of the
valuation methodologies used for assets measured at fair value, as well as the
general classification of such instruments pursuant to the valuation hierarchy,
is set forth below.
Fixed
maturities:
Fixed maturities are
recorded at fair value on a recurring basis utilizing a third-party pricing
source. The valuations are reviewed and validated quarterly through random
testing by comparisons to separate pricing models or other third party pricing
services. For the period ended June 30, 2016, there were no material changes to
the valuation methods or assumptions used to determine fair values, and no
broker or third party prices were changed from the values received. Securities
with prices based on validated quotes from pricing services are reflected within
Level 2.
Cost method investments:
The cost method investments are
comprised of New Mexico Capital Corporation. This security has no active trading
and the fair value for this security is not readily determinable. Therefore,
this investment has been omitted from the fair value disclosure
tables.
Cash:
The carrying value of cash and cash equivalents
and short-term investments approximate the fair value because of the short
maturity of the instruments.
Policy loans:
Policy loans are stated at unpaid
principal balances. As these loans are fully collateralized by the cash
surrender value of the underlying insurance policies, the carrying value of the
policy loans approximates their fair value. Policy loans are categorized as
Level 3 in the fair value hierarchy.
Deposit-type contracts:
The fair value for direct and
assumed liabilities under deposit-type insurance contracts (accumulation
annuities) is calculated using a discounted cash flow approach. Cash flows are
projected using actuarial assumptions and discounted to the valuation date using
risk-free rates adjusted for credit risk and nonperformance risk of the
liabilities. Liabilities under deposit-type insurance contracts that are wholly
ceded by Capital Reserve to a non-affiliated reinsurer are carried at cash
surrender value which approximates fair value. These liabilities are categorized
as Level 3 in the fair value hierarchy.
Surplus notes:
The fair value for surplus notes
is calculated using a discounted cash flow approach. Cash flows are projected
utilizing scheduled repayments and discounted to the valuation date using market
rates currently available for debt with similar remaining maturities. These
notes are structured such that all interest is paid at maturity. In the
following fair value tables, the Company has included accrued interest expense,
which is recorded in the accounts payable and accrued expenses, of approximately
$237,502 and $229,405 in carrying value of the surplus notes as of June 30, 2016
and December 31, 2015, respectively. These liabilities are categorized as Level
3 in the fair value hierarchy.
17
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
The following table
presents the Companys fair value hierarchy for those financial instruments
measured at fair value on a recurring basis as of June 30, 2016 and December 31,
2015.
|
|
|
|
Significant
|
|
|
|
|
|
|
|
Quoted
|
|
Other
|
|
Significant
|
|
|
|
|
In Active
|
|
Observable
|
|
Unobservable
|
|
Estimated
|
|
Markets
|
|
Inputs
|
|
Inputs
|
|
Fair
|
|
(Level
1)
|
|
(Level
2)
|
|
(Level
3)
|
|
Value
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government obligations
|
$
|
-
|
|
$
|
4,280,798
|
|
$
|
-
|
|
$
|
4,280,798
|
States
and political subdivisions general obligations
|
|
-
|
|
|
734,667
|
|
|
-
|
|
|
734,667
|
States
and political subdivisions special revenue
|
|
-
|
|
|
291,982
|
|
|
-
|
|
|
291,982
|
Corporate
|
|
-
|
|
|
19,047,219
|
|
|
-
|
|
|
19,047,219
|
Total fixed
maturities
|
$
|
-
|
|
$
|
24,354,666
|
|
$
|
-
|
|
$
|
24,354,666
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government obligations
|
$
|
-
|
|
$
|
3,193,499
|
|
$
|
-
|
|
$
|
3,193,499
|
States
and political subdivisions general obligations
|
|
-
|
|
|
995,051
|
|
|
-
|
|
|
995,051
|
States
and political subdivisions special revenue
|
|
-
|
|
|
273,336
|
|
|
-
|
|
|
273,336
|
Corporate
|
|
-
|
|
|
18,809,391
|
|
|
-
|
|
|
18,809,391
|
|
$
|
-
|
|
$
|
23,271,277
|
|
$
|
-
|
|
$
|
23,271,277
|
There were no transfers of
financial instruments between any levels during the six months ended June 30,
2016 or during the year ended December 31, 2015.
Accounting standards
require disclosure of the fair value of financial assets and financial
liabilities, including those financial assets and financial liabilities that are
not measured and reported at fair value on a recurring basis or
non-recurring basis. The methodologies for estimating
the fair value of financial assets and financial liabilities that are measured
at fair value on a recurring basis are discussed above. There were no financial
assets or financial liabilities measured at fair value on a non-recurring basis.
Equity securities carried at cost are privately purchased common stocks. These
common stocks are recorded using the cost basis of accounting. These securities
have no active trading and the fair value for these securities is not readily
determinable. The Company does not control these entities economically, and
therefore does not consolidate these entities.
18
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
The following disclosure
contains the carrying values, estimated fair values and their corresponding
placement in the fair value hierarchy, for financial assets and financial
liabilities as of June 30, 2016 and December 31, 2015, respectively:
|
|
June 30,
2016
|
|
|
|
|
|
Fair Value
Measurements at Date Using
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for Identical
|
|
Significant Other
|
|
Significant
|
|
|
|
|
|
|
|
|
Assets and
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
Carrying
|
|
Liabilities
|
|
Inputs
|
|
Inputs
|
|
Fair
|
|
|
Amount
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Value
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy loans
|
|
$
|
393,492
|
|
$
|
-
|
|
$
|
-
|
|
$
|
393,492
|
|
$
|
393,492
|
Cash and cash
equivalents
|
|
|
3,214,086
|
|
|
3,214,086
|
|
|
-
|
|
|
-
|
|
|
3,214,086
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder
deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deposit-type
contracts)
|
|
|
15,165,556
|
|
|
-
|
|
|
-
|
|
|
15,165,556
|
|
|
15,165,556
|
Surplus notes and accrued
interest payable
|
|
|
795,599
|
|
|
-
|
|
|
-
|
|
|
791,798
|
|
|
791,798
|
|
|
|
December 31,
2015
|
|
|
|
|
|
Fair Value
Measurements at Date Using
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for Identical
Assets and
|
|
Significant Other
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
Carrying
|
|
Liabilities
|
|
Inputs
|
|
Inputs
|
|
Fair
|
|
|
Amount
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Value
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy loans
|
|
$
|
420,775
|
|
$
|
-
|
|
$
|
-
|
|
$
|
420,775
|
|
$
|
420,775
|
Cash and cash
equivalents
|
|
|
1,192,336
|
|
|
1,192,336
|
|
|
-
|
|
|
-
|
|
|
1,192,336
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder
deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deposit-type
contracts)
|
|
|
13,897,421
|
|
|
-
|
|
|
-
|
|
|
13,897,421
|
|
|
13,897,421
|
Surplus notes and accrued
interest payable
|
|
|
779,405
|
|
|
-
|
|
|
-
|
|
|
768,022
|
|
|
768,022
|
19
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Note 6. Income Tax Matters
Significant components of
the Companys deferred tax assets and liabilities as of June 30, 2016 and
December 31, 2015 are as follows:
|
June 30, 2016
|
|
December 31, 2015
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Loss carry
forwards
|
$
|
9,563,021
|
|
|
$
|
8,962,587
|
|
Capitalized
costs
|
|
628,768
|
|
|
|
667,264
|
|
Unrealized losses
on investments
|
|
10,367
|
|
|
|
356,495
|
|
Benefit
reserves
|
|
1,022,824
|
|
|
|
1,071,997
|
|
Total deferred tax
assets
|
|
11,224,980
|
|
|
|
11,058,343
|
|
Less valuation
allowance
|
|
(9,471,333
|
)
|
|
|
(9,287,024
|
)
|
Total deferred tax
assets, net of valuation allowance
|
|
1,753,647
|
|
|
|
1,771,319
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Policy acquisition
costs
|
|
634,200
|
|
|
|
593,654
|
|
Due
premiums
|
|
234,432
|
|
|
|
234,468
|
|
Value of business
acquired
|
|
645,315
|
|
|
|
693,297
|
|
Intangible
assets
|
|
238,000
|
|
|
|
238,000
|
|
Property and
equipment
|
|
1,700
|
|
|
|
11,900
|
|
Total deferred tax
liabilities
|
|
1,753,647
|
|
|
|
1,771,319
|
|
Net deferred tax assets
|
$
|
-
|
|
|
$
|
-
|
|
At June 30, 2016 and
December 31, 2015, the Company recorded a valuation allowance of $9,471,333 and
$9,287,024, respectively, on the deferred tax assets to reduce the total to an
amount that management believes will ultimately be realized. Realization of
deferred tax assets is dependent upon sufficient future taxable income during
the period that deductible temporary differences and carryforwards are expected
to be available to reduce taxable income.
Loss carryforwards for tax
purposes as of June 30, 2016, have expiration dates that range from 2024 through
2035.
There was no income tax expense for the three or six months ended June
30, 2016 and 2015. This differed from the amounts computed by applying the
statutory U.S. federal income tax rate of 34% to pretax income, as a result of
the following:
|
Three months ended June
30,
|
|
Six months ended June
30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Computed expected income tax benefit
|
$
|
(312,825
|
)
|
|
$
|
(279,849
|
)
|
|
$
|
(574,258
|
)
|
|
$
|
(545,090
|
)
|
Increase (reduction) in
income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meals,
entertainment and political contributions
|
|
9,598
|
|
|
|
12,862
|
|
|
|
18,755
|
|
|
|
16,534
|
|
Dividends received
deduction
|
|
-
|
|
|
|
(38
|
)
|
|
|
-
|
|
|
|
(44
|
)
|
Other
|
|
56,760
|
|
|
|
193,054
|
|
|
|
25,066
|
|
|
|
259,220
|
|
|
|
66,358
|
|
|
|
205,878
|
|
|
|
43,821
|
|
|
|
275,710
|
|
Tax
benefit before valuation allowance
|
|
(246,467
|
)
|
|
|
(73,971
|
)
|
|
|
(530,437
|
)
|
|
|
(269,380
|
)
|
Change in valuation
allowance
|
|
246,467
|
|
|
|
73,971
|
|
|
|
530,437
|
|
|
|
269,380
|
|
Net
income tax expense
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
20
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Note 7.
Reinsurance
A summary of significant
reinsurance amounts affecting the accompanying consolidated financial statements
as of June 30, 2016 and December 31, 2015 and for the three and six months ended
June 30, 2016 and 2015 is as follows:
|
June 30, 2016
|
|
December 31, 2015
|
Balance sheets:
|
|
|
|
|
|
Benefit and claim
reserves assumed
|
$
|
2,695,539
|
|
$
|
2,763,779
|
Benefit and claim
reserves ceded
|
|
11,859,279
|
|
|
12,212,656
|
|
|
Three months ended June
30,
|
|
Six months ended June
30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Statements of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
assumed
|
|
$
|
5,466
|
|
$
|
6,417
|
|
|
$
|
12,231
|
|
|
$
|
13,668
|
|
Premiums ceded
|
|
|
84,117
|
|
|
75,748
|
|
|
|
150,274
|
|
|
|
157,370
|
|
Benefits
assumed
|
|
|
25,135
|
|
|
47,370
|
|
|
|
30,158
|
|
|
|
51,959
|
|
Benefits ceded
|
|
|
216,531
|
|
|
273,537
|
|
|
|
571,656
|
|
|
|
532,493
|
|
Commissions
assumed
|
|
|
9
|
|
|
6
|
|
|
|
17
|
|
|
|
10
|
|
Commissions
ceded
|
|
|
650
|
|
|
900
|
|
|
|
1,288
|
|
|
|
1,854
|
|
The following table
provides a summary of the significant reinsurance balances recoverable on paid
and unpaid policy claims by reinsurer along with the A.M. Best credit rating as
of June 30, 2016:
|
|
|
|
|
|
|
|
|
|
Recoverable on
|
|
|
|
|
Total Amount
|
|
|
|
|
Recoverable
|
|
Recoverable
|
|
Benefit
|
|
Ceded
|
|
Recoverable
|
|
|
AM Best
|
|
on Paid
|
|
on Unpaid
|
|
Reserves/Deposit-
|
|
Due
|
|
from
|
Reinsurer
|
|
Rating
|
|
Losses
|
|
Losses
|
|
type
Contracts
|
|
Premiums
|
|
Reinsurer
|
Optimum Re Insurance Company
|
|
A-
|
|
$
|
-
|
|
$
|
30,450
|
|
$
|
189,504
|
|
$
|
-
|
|
$
|
219,954
|
Sagicor Life Insurance Company
|
|
A-
|
|
|
-
|
|
|
281,272
|
|
|
11,597,158
|
|
|
239,105
|
|
|
11,639,325
|
|
|
|
|
$
|
-
|
|
$
|
311,722
|
|
$
|
11,786,662
|
|
$
|
239,105
|
|
$
|
11,859,279
|
During 1999, Old Reliance
entered into a 75% coinsurance agreement with Sagicor Life (Sagicor) whereby 75%
of the business written by Old Reliance is ceded to Sagicor. During 2000, Old
Reliance coinsured the remaining 25% with Sagicor. At June 30, 2016 and December
31, 2015 total benefit reserves, policy claims, deposit-type contracts, and due
premiums ceded by Old Reliance to Sagicor were $11,639,325 and $11,873,254,
respectively. Old Reliance remains contingently liable on this ceded reinsurance
should Sagicor be unable to meet their obligations.
The use of reinsurance does
not relieve the Company of its primary liability to pay the full amount of the
insurance benefit in the event of the failure of a reinsurer to honor its
contractual obligation. No reinsurer of business ceded by the Company has failed
to pay policy claims (individually or in the aggregate) with respect to our
ceded business.
The Company monitors several factors that it considers relevant
to satisfy itself as to the ongoing ability of a reinsurer to meet all
obligations of the reinsurance agreements. These factors include the credit
rating of the reinsurer, the financial strength of the reinsurer, significant
changes or events of the reinsurer, and any other relevant factors. If the
Company believes that any reinsurer would not be able to satisfy its obligations
with the Company, a separate contingency reserve may be established. At June 30,
2016 and December 31, 2015, no contingency reserve was established.
21
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Note 8. Deposit-Type
Contracts
The Companys deposit-type
contracts represent the contract value that has accrued to the benefit of the
policyholder as of the balance sheet date. Liabilities for these deposit-type
contracts are included without reduction for potential surrender charges. This
liability is equal to the accumulated account deposits, plus interest credited,
and less policyholder withdrawals. The following table provides information
about deposit-type contracts for
the six months
ended June 30, 2016 and year ended
December 31, 2015:
|
Six Months Ended
|
|
Year Ended
|
|
June 30, 2016
|
|
December 31, 2015
|
Beginning balance
|
$
|
13,897,421
|
|
|
$
|
10,722,227
|
|
First Wyoming Life beginning balance
|
|
-
|
|
|
|
799,990
|
|
Change in deposit-type contracts assumed from
SNL
|
|
-
|
|
|
|
(1,200
|
)
|
Deposits received
|
|
1,339,406
|
|
|
|
2,387,104
|
|
Investment earnings
|
|
352,989
|
|
|
|
533,646
|
|
Withdrawals
|
|
(421,203
|
)
|
|
|
(533,762
|
)
|
Contract Charges
|
|
(3,057
|
)
|
|
|
(10,584
|
)
|
Ending Balance
|
$
|
15,165,556
|
|
|
$
|
13,897,421
|
|
Under the terms of American
Lifes coinsurance agreement with SNL, American Life assumes certain
deposit-type contract obligations, as shown in the table above. The remaining
deposits, withdrawals and interest credited represent those for American Lifes
direct business.
Note 9. Commitments and
Contingencies
Legal Proceedings:
We are involved in litigation
incidental to our operations from time to time. We are not presently a party to
any legal proceedings other than litigation arising in the ordinary course of
our business, and we are not aware of any claims that could materially affect
our financial position or results of operations.
Regulatory
Matters
: State and federal
regulatory bodies regularly make inquiries and conduct examinations or
investigations concerning the Companys compliance with laws in relation to, but
not limited to, insurance and securities. The issues involved in information
requests and regulatory matters vary widely. The Company cooperates in these
inquiries.
Office Lease:
The Company leases office space
in Lincoln, Nebraska under an agreement executed October 17, 2013 that expires
on January 31,
2024. Great
Plains entered into a lease on October
4, 2013 for office space in Mitchell, South Dakota, which expires on November
30, 2016.
First Wyoming leases space in Cheynne, Wyoming, which expires on August 31, 2016.
Rent expense for the three months ended June 30, 2016 and 2015 was
$99,833 and $55,377 respectively. Rent expense for the six months ended June 30,
2016 and 2015 was $173,043 and $111,752 respectively. Future minimum payments
rental are as follows:
2016
|
$
|
92,292
|
2017
|
|
149,481
|
2018
|
|
136,557
|
2019
|
|
141,412
|
2020
|
|
146,477
|
Later years
|
|
483,333
|
Total
|
$
|
1,149,552
|
22
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Note 10. Statutory Net
Income and Surplus
American Life is required
to prepare statutory financial statements in accordance with statutory
accounting practices prescribed or permitted by the Arizona Department of
Insurance. Likewise, Capital Reserve, Great Plains Life, and First Wyoming Life
are required to prepare statutory financial statements in accordance with
statutory accounting practices prescribed or permitted by the Missouri, South
Dakota, and Wyoming Departments of Insurance, respectively Statutory practices
primarily differ from GAAP by charging policy acquisition costs to expense as
incurred, establishing future policy benefit liabilities using different
actuarial assumptions as well as valuing investments and certain assets and
accounting for deferred taxes on a different basis. The following table
summarizes the statutory net loss and statutory capital and surplus of American
Life, Capital Reserve, and Great Plains Life, and First Wyoming Life as of June
30, 2016 and December 31, 2015 and for the six months ended June 30, 2016 and
2015.
|
|
Statutory Capital and
Surplus as of
|
|
|
June 30,
2016
|
|
December 31,
2015
|
American Life
|
|
$
|
1,938,747
|
|
|
$
|
2,526,392
|
|
Capital Reserve
|
|
|
1,381,445
|
|
|
|
1,464,044
|
|
Great Plains Life
|
|
|
1,582,416
|
|
|
|
1,663,368
|
|
First
Wyoming Life
|
|
|
2,625,322
|
|
|
|
2,715,494
|
|
|
|
|
Statutory Net Income
(Loss) for the six months ended June 30,
|
|
|
2016
|
|
2015
|
American Life
|
|
$
|
(397,388
|
)
|
|
$
|
(697,981
|
)
|
Capital Reserve
|
|
|
(80,322
|
)
|
|
|
(25,490
|
)
|
Great Plains Life
|
|
|
(71,036
|
)
|
|
|
(261,506
|
)
|
First
Wyoming Life
|
|
|
(223,940
|
)
|
|
|
(165,211
|
)
|
Note 11. Surplus
Notes
The following provides a
summary of the Companys surplus notes along with issue dates, maturity dates,
face amounts, and interest rates as of June 30, 2016:
Creditor
|
|
Issue
Date
|
|
Maturity
Date
|
|
Face
Amount
|
|
Interest
Rate
|
David G. Elmore
|
|
September 1, 2006
|
|
September 1, 2016
|
|
$
|
250,000
|
|
7%
|
David G. Elmore
|
|
August 4, 2011
|
|
August 1, 2016
|
|
|
300,000
|
|
5%
|
Any payments and/or
repayments must be approved by the
Nebraska
Department of Insurance. As of June
30, 2016, the Company has accrued $245,599 of interest expense under accounts
payable and accrued expenses on the consolidated balance sheet. No payments were
made in the six months ending June 30, 2016, or during the year ended December
31, 2015.
The surplus note for $300,000 matured on August 1, 2016. Due to the nature of surplus notes, a repayment cannot be made without the prior approval of the Nebraska regulators.
Note 12. Related Party
Transactions
The Company commenced its
third party administrative (TPA) services in 2012 as an additional revenue
source. These agreements, for various levels of administrative services on
behalf of each customer, generate fee income for the Company. Services provided
to each customer vary based on their needs and can include some or all aspects
of back-office accounting and policy administration. We have been able to
perform our TPA services using our existing in-house resources. Fees earned
during the three months ended June 30, 2016 and 2015 were $13,500 and $40,608,
respectively. Fees earned during the six months ended June 30, 2016 and 2015
were $28,000 and $95,594, respectively.
23
Midwest Holding Inc. and
Subsidiaries
Notes to
Consolidated Financial Statements Continued
Note 13. Subsequent Events
All of the effects of
subsequent events that provide additional evidence about conditions that existed
at June 30, 2016, including the estimates inherent in the process of preparing
consolidated financial statements, are recognized in the consolidated financial
statements. The Company does not recognize subsequent events that provide
evidence about conditions that did not exist at the date of the consolidated
financial statements but arose after, but before the consolidated financial
statements were available to be issued. In some cases, non-recognized subsequent
events are disclosed to keep the consolidated financial statements from being
misleading.
The Company has evaluated subsequent events through the date that the consolidated financial statements were issued and found no events to report.