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UNITED
STATES
 SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2005
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the transition period from  to
 Commission
File Number: 1-13004
 CITIZENS, INC.
  Colorado
    
    84-0755371(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)400 East Anderson Lane, Austin, Texas
    
    78752(Address of principal executive offices)
    
    (Zip Code)
 
  
   þ o
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 INDEX
 PageNumberPart I. Financial InformationItem 1. Financial StatementsConsolidated Statements of Financial Position,
June 30, 2005 (Unaudited) and December 31, 2004
    
    
    3Consolidated Statements of Operations, Three Months
Ended June 30, 2005 and 2004 (Unaudited)
    
    
    5Consolidated Statements of Operations, Six Months
Ended June 30, 2005 and 2004 (Unaudited)
    
    
    6Consolidated Statements of Cash Flows, Six Months
Ended June 30, 2005 and 2004 (Unaudited)
    
    
    7Notes to Consolidated Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis
of Financial Condition and Results
of Operations
    
    
    19Item 3.Quantitative and Qualitative
Disclosures about Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    35Part II. Other Information
    
    
    38Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
June 30, 2005 and December 31, 2004
 (Unaudited)June 30,
    
    
    December 31,2005
    
    
    2004AssetsInvestments:Fixed maturities held-to-maturity, at
amortized cost (fair value $9,487,768
in 2005 and $8,826,950 in 2004)
    
    $
    7,576,870
    
    
    $
    7,514,224Fixed maturities available-for-sale, at
fair value (cost $422,621,834 in
2005 and $441,528,337 in 2004)
    
    
    427,377,616
    
    
    
    440,052,698Equity securities, available-for-sale, at fair value
(cost $723,410 in 2005 and 2004)
    
    
    1,059,089
    
    
    
    1,063,917Mortgage
loans on real estate (net of allowance
of $50,000 in 2005 and $250,000 in 2004)
    
    
    612,445
    
    
    
    349,611Policy loans
    
    
    24,135,820
    
    
    
    24,316,468Other long-term investments
    
    
    1,861,538
    
    
    
    2,505,025Total investments
    
    
    462,623,378
    
    
    
    475,801,943Cash and cash equivalents
    
    
    30,338,719
    
    
    
    31,720,787Accrued investment income
    
    
    5,667,213
    
    
    
    6,113,474Reinsurance recoverable
    
    
    17,712,095
    
    
    
    17,806,573Deferred policy acquisition costs
    
    
    62,706,967
    
    
    
    56,335,361Other intangible assets
    
    
    2,331,069
    
    
    
    2,331,069Federal income tax recoverable
    
    
    36,962
    
    
    
    Cost of customer relationships acquired
    
    
    42,408,650
    
    
    
    44,904,581Excess of cost over net assets acquired
    
    
    12,401,990
    
    
    
    12,401,990Property, plant and equipment
    
    
    7,690,401
    
    
    
    8,797,445Other assets
    
    
    4,782,396
    

    
    
    4,998,339Total assets
    
    $
    648,699,840
    
    
    $
    661,211,562
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION, CONTINUED
June 30, 2005 and December 31, 2004
 (Unaudited)June 30,
    
    
    December 31,2005
    
    
    2004Liabilities and Stockholders EquityLiabilities:Future policy benefit reserves:Life insurance
    
    $
    425,645,778
    
    
    $
    413,106,928Annuities
    
    
    18,399,775
    
    
    
    16,913,432Accident and health
    
    
    12,400,492
    
    
    
    13,604,150Dividend accumulations
    
    
    4,952,291
    
    
    
    4,932,124Premium deposits
    
    
    8,899,412
    
    
    
    7,938,529Policy claims payable
    
    
    8,394,731
    
    
    
    8,282,508Other policyholders funds
    
    
    5,830,734
    
    
    
    5,689,378Total policy liabilities
    
    
    484,523,213
    
    
    
    470,467,049Commissions payable
    
    
    2,983,922
    
    
    
    2,325,503Federal income tax payable
    
    
    
    
    
    
    1,307,249Payable for securities in the process of
settlement
    
    
    4,750,000
    
    
    
    7,052,398Notes payable
    
    
    
    
    
    
    30,000,000Deferred Federal income tax
    
    
    3,180,206
    
    
    
    805,387Liabilities for options and warrants
    
    
    2,795,274
    
    
    
    2,738,062Other liabilities
    
    
    2,603,501
    
    
    
    5,483,564Total liabilities
    
    
    500,836,116
    
    
    
    520,179,212Cumulative convertible preferred stock  Series A-1
($500 stated value, 50,000 shares authorized,
25,000 shares issued and outstanding in 2005 and
2004)
    
    
    6,629,072
    
    
    
    5,901,271Stockholders Equity:Common stock:Class A, no par value, 100,000,000 shares
authorized, 40,409,615 shares issued in 2005 and 40,364,332 in 2004, including
shares in treasury of 2,930,596 in 2005 and
2004
    
    
    198,530,258
    
    
    
    198,266,955Class B, no par value, 2,000,000 shares
authorized, 936,181 shares issued and
outstanding in 2005 and 2004
    
    
    2,827,191
    
    
    
    2,827,191Retained deficit
    
    
    (53,590,580
    )
    
    
    (55,321,287
    )Accumulated other comprehensive income (loss):Unrealized gains (losses) on securities, net of tax
    
    
    3,360,364
    
    
    
    (749,199
    )151,127,233
    
    
    
    145,023,660Treasury stock, at cost
    
    
    (9,892,581
    )
    
    
    (9,892,581
    )Total stockholders equity
    
    
    141,234,652
    
    
    
    135,131,079Total liabilities and stockholders equity
    
    $
    648,699,840
    
    
    $
    661,211,562
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30, 2005 and 2004
 (Unaudited)
 Three Months Ended June 30,2005
    
    2004Revenues:Premiums
    
    $
    27,592,963
    
    
    $
    16,868,103Annuity and universal life considerations
    
    
    669,691
    
    
    
    852,583Net investment income
    
    
    5,703,241
    
    
    
    3,790,004Realized gains
    
    
    546,548
    
    
    
    217,173Increase in fair value of options and warrants
    
    
    (491,618
    )
    
    
    Other income
    
    
    174,039
    
    
    
    157,823Total revenues
    
    
    34,194,864
    
    
    
    21,885,686Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    13,223,023
    
    
    
    7,644,032Increase in future policy benefit reserves
    
    
    6,516,058
    
    
    
    4,563,623Policyholders dividends
    
    
    1,206,932
    
    
    
    998,824Total insurance benefits paid or provided
    
    
    20,946,013
    
    
    
    13,206,479Commissions
    
    
    8,157,702
    
    
    
    4,489,225Other underwriting, acquisition and insurance expenses
    
    
    6,342,176
    
    
    
    4,182,936Capitalization of deferred policy acquisition costs
    
    
    (5,974,897
    )
    
    
    (4,356,772
    )Amortization of deferred policy acquisition costs
    
    
    2,653,276
    
    
    
    2,319,749Amortization of cost of customer relationships acquired
    
    
    1,346,005
    
    
    
    635,254Gain on coinsurance agreements
    
    
    
    
    
    
    (23,848
    )Total benefits and expenses
    
    
    33,470,275
    
    
    
    20,453,023Income before Federal income tax
    
    
    724,589
    
    
    
    1,432,663Federal income tax expense
    
    
    362,264
    
    
    
    547,715Net income
    
    $
    362,325
    
    
    $
    884,948Per Share Amounts:Basic and diluted income per share of
common stock
    
    $
    0.00
    
    
    $
    0.02Weighted average shares outstanding
    
    
    38,393,453
    
    
    
    38,317,079
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2005 and 2004
 (Unaudited)
 Six Months Ended June 30,2005
    
    2004Revenues:Premiums
    
    $
    55,376,961
    
    
    $
    31,989,705Annuity and universal life considerations
    
    
    1,465,064
    
    
    
    1,769,820Net investment income
    
    
    11,479,198
    
    
    
    7,664,332Realized gains
    
    
    615,675
    
    
    
    256,385Increase in fair value of options and warrants
    
    
    (57,212
    )
    
    
    Other income
    
    
    381,800
    
    
    
    310,407Total revenues
    
    
    69,261,486
    
    
    
    41,990,649Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    25,932,708
    
    
    
    16,289,378Increase in future policy benefit reserves
    
    
    12,114,555
    
    
    
    7,239,869Policyholders dividends
    
    
    2,077,100
    
    
    
    1,730,013Total insurance benefits paid or provided
    
    
    40,124,363
    
    
    
    25,259,260Commissions
    
    
    15,490,093
    
    
    
    8,262,533Other underwriting, acquisition and insurance expenses
    
    
    13,445,894
    
    
    
    7,619,171Capitalization of deferred policy acquisition costs
    
    
    (10,995,982
    )
    
    
    (7,998,504
    )Amortization of deferred policy acquisition costs
    
    
    4,624,376
    
    
    
    4,968,304Amortization of cost of customer relationships acquired
    
    
    2,495,931
    
    
    
    1,360,015Loss on coinsurance agreements
    
    
    
    
    
    
    610,613Total benefits and expenses
    
    
    65,184,675
    
    
    
    40,081,392Income before Federal income tax
    
    
    4,076,811
    
    
    
    1,909,257Federal income tax expense
    
    
    1,355,000
    
    
    
    652,566Net income
    
    $
    2,721,811
    
    
    $
    1,256,691Per Share Amounts:Basic and diluted income per share of
common stock
    
    $
    0.05
    
    
    $
    0.03Weighted average shares outstanding
    
    
    38,381,685
    
    
    
    38,317,079
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2005 and 2004
 (Unaudited)
 Six Months Ended June 30,2005
    
    2004Cash flows from operating activities:Net income
    
    $
    2,721,811
    
    
    $
    1,256,691Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Realized gains on sale of investments
and other assets
    
    
    (615,675
    )
    
    
    (256,385
    )Loss on coinsurance agreements
    
    
    
    
    
    
    610,613Net deferred policy acquisition costs
    
    
    (6,371,606
    )
    
    
    (3,030,200
    )Increase on fair value of options and
warrants
    
    
    57,212
    
    
    
    Amortization of cost of customer
relationships acquired and other
intangibles
    
    
    2,495,931
    
    
    
    1,360,015Depreciation
    
    
    491,606
    
    
    
    368,707Deferred Federal income tax
    
    
    257,637
    
    
    
    (57,202
    )Change in:Accrued investment income
    
    
    446,261
    
    
    
    27,305Reinsurance recoverable
    
    
    94,478
    
    
    
    (10,844,789
    )Future policy benefit reserves
    
    
    12,821,535
    
    
    
    6,706,016Other policy liabilities
    
    
    1,234,629
    
    
    
    (2,461
    )Federal income tax
    
    
    (1,344,211
    )
    
    
    228,801Commissions payable and other liabilities
    
    
    (2,221,431
    )
    
    
    (1,152,427
    )Other, net
    
    
    287,949
    
    
    
    (235,212
    )Net cash provided by (used in)
operating activities
    
    
    10,356,126
    
    
    
    (5,020,528
    )Cash flows from investing activities:Sale of fixed maturities, available-for-sale
    
    
    14,379,300
    
    
    
    18,609,707Sale of equity securities, available-for-sale
    
    
    
    
    
    
    37,500Maturity of fixed maturities, available-for-sale
    
    
    72,598,028
    
    
    
    62,016,019Purchase of fixed maturities, available-for-sale
    
    
    (69,579,417
    )
    
    
    (49,146,687
    )Principal payments on mortgage loans
    
    
    24,878
    
    
    
    44,965Sale of other long-term investments and property,
plant and equipment
    
    
    946,081
    
    
    
    76,439Mortgage loans funded
    
    
    (287,712
    )
    
    
    Decrease in policy loans, net
    
    
    180,648
    
    
    
    428,706Purchase of other long-term investments and property,
plant and equipment
    
    
    
    
    
    
    (3,186,132
    )Net cash provided by investing
activities
    
    
    18,261,806
    
    
    
    28,880,517
 See accompanying notes to consolidated financial statements.
    
    (Continued)
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Six Months Ended June 30, 2005 and 2004
 (Unaudited)
 Six Months Ended June 30,2005
    
    2004Cash flows from financing activities:Payoff of notes payable
    
    $
    (30,000,000
    )
    
    $
    Net cash used in financing activities
    
    
    (30,000,000
    )
    
    
    Net increase (decrease) in cash and cash
equivalents
    
    
    (1,382,068
    )
    
    
    23,859,989Cash and cash equivalents at beginning of period
    
    
    31,720,787
    
    
    
    15,016,254Cash and cash equivalents at end of period
    
    $
    30,338,719
    
    
    $
    38,876,243Supplemental:Cash paid during the period for income taxes
    
    $
    2,441,574
    
    
    $
    480,967
 Supplemental Disclosure of Non-Cash Investing and Financing Activities:
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
 (Unaudited)
 (1)
    
    Financial StatementsThe interim consolidated financial statements include the accounts and operations of
Citizens, Inc. (Citizens), incorporated in the state of Colorado on November 8, 1977, and
its wholly-owned subsidiaries, Citizens Insurance Company of America (CICA), Computing
Technology, Inc. (CTI), Funeral Homes of America, Inc. (FHA), Insurance Investors, Inc.
(III), Citizens USA Life Insurance Company (CUSA), Citizens National Life Insurance
Company (CNLIC), First Alliance Insurance Company (FAIC), KYWIDE Insurance Management,
Inc. (KYWIDE), Mid-American Alliance Corporation (Mid-American), Mid American Century
Life Insurance Company (MACLIC), Security Alliance Insurance Company (SAIC), Security
Plan Life Insurance Company (Security Plan or SPLIC), Security Plan Fire Insurance Company
(SPFIC), Mid-American Associates Agency, Inc. (MAAAI), Mid-American Alliance Insurance
Agency, Inc. (MAAIA) and Industrial Benefits, Inc. (IBI). Citizens and its consolidated
subsidiaries are collectively referred to as the Company, we, or our.During 2004, Citizens acquired Security Plan and its subsidiary, SPFIC. In addition,
First Alliance Corporation and Alliance Insurance Management, a dormant subsidiary, were
dissolved, and Combined Underwriters Life Insurance Company was renamed CNLIC. On March
1, 2005, FAIC was merged into CICA, and on April 1, 2005, MAAIA was sold for an
immaterial amount.The statement of financial position for June 30, 2005, the statements of operations for
the three-month and six-month periods ended June 30, 2005 and 2004, and the statements of
cash flows for the six-month periods then ended have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position, results of
operations and changes in cash flows at June 30, 2005, and for comparative periods
presented have been made.Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States
of America (U.S. GAAP) have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes thereto
included in the Companys December 31, 2004, Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The results of operations for the period ended June
30, 2005, are not necessarily indicative of the operating results for the full year.Certain reclassifications have been made to the three month consolidated statement of
operations for comparative purposes.
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(2)
    
    Coinsurance AgreementsOn March 9, 2004, the Company entered into coinsurance agreements, effective January 1,
2004, and ceded approximately $15 million of its annual accident and health premium and
corresponding benefits and claims. In consideration for these cessions, the Company had
a liability for funds held under reinsurance agreements of $10,496,549 as of March 31,
2004 and made a closing settlement payment of this amount to the reinsurer in May 2004.
Due to this cession, the Company also ceded its January 1, 2004 deferred policy
acquisition costs, cost of customer relationships acquired and policy
benefit reserve of
$2,197,434, $2,886,060 and $14,960,408, respectively, and recorded an initial amount
payable to the reinsurer of $10,439,830, resulting in a loss of $634,461 and a deferred
gain of $71,545. The deferred gain was fully amortized to earnings in
2004. The Company also participates in future profits on the accident and health business
subject to the coinsurance agreements over a 10-year period. For the first six months of
2005, there were no profits on the business. The
coinsurance agreement provides that this ceded business will revert to the reinsurer when
a parallel assumption reinsurance agreement is approved by the various state insurance
departments holding jurisdiction. No approvals had been obtained as of June 30, 2005.  At June 30, 2005, the
Company was in negotiations with the assuming Company to sell the
charter of CNLIC, which would negate the need for approval of a
majority of the assumed business.(3)
    
    Revolving Line of CreditOn March 22, 2004, the Company entered into a revolving loan agreement with Regions Bank
establishing a commitment for a line of credit of $30,000,000 that matured on March 22,
2005. It was extended at maturity until June 30, 2005. The line of credit has a maximum
of $5,000,000 for general corporate purposes not related to acquisition of insurance
companies and any borrowings up to the maximum for general corporate purposes are
unsecured. The line of credit bears interest at the lesser of the thirty-day LIBOR
(London InterBank Offered Rate) plus 180 basis points or the highest lawful rate. The
Company paid a loan origination fee equal to 37.5 basis points of the line of credit.
The loan is secured by 100% of the common stock of any company acquired by the Company or
any of its subsidiaries if the line of credit is used for any part of an acquisition.On October 1, 2004, the Company entered into a Second Amendment to the Loan Agreement
that converted into a term loan a $30 million advance against the line of credit made for
the purpose of acquiring Security Plan. Under the term loan, the
Company was required to repay the principal portion of the loan in ten semi-annual
installments of $3,000,000 beginning on May 1, 2005, with the final installment of
principal and any accrued and unpaid interest on November 1, 2009. Interest on the
unpaid principal balance of the loan was required to be paid on the fifth day of each
month following the end of the fiscal quarter of the Company. The interest rate was
equal to a 30-day LIBOR plus 1.8% per year. In connection with the acquisition of
Security Plan, the Companys borrowed funds on its term loan were loaned to CICA.After funding the term loan, the Companys line of credit had been drawn down to zero.
Under the Amended Loan Agreement, upon any prepayment or repayment of the term loan
described above, the line of credit will be reinstated to an aggregate amount equal to
the difference between (a) $30 million minus (b) the aggregate outstanding principal
amount under the term loan.
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Because CICA is an insurance company formed under the laws of Colorado, under the
subordinated debenture, any principal and accrued interest is not a legal liability of
CICA until repayment of interest or principal has received the prior written approval of
the Commissioner of Insurance for the State of Colorado. CICA pledged
100% of the stock of
Security Plan to the bank as collateral.In April 2005, the term loan was paid off and the line of credit restored to the
$30,000,000 level.(4)
    
    Segment InformationHistorically, the Company has had three reportable segments: International Life Business,
Domestic Health Business and Domestic Life Business. During 2004, following the
acquisition of Security Plan, a new segment, Home Service Business, was established.International Life Business, consisting of ordinary whole-life business, is sold
primarily throughout Central and South America. The Company has no assets, offices or
employees outside of the United States of America (U.S.) and requires that all
transactions be in U.S. dollars paid in the U.S. Domestic Health Business, consisting of
accident and health, specified disease, hospital indemnity and accidental death policies,
is sold throughout the southern U.S. Domestic Life Business, consisting of traditional
life, burial insurance and pre-need policies, is sold throughout the southern U.S. The
accounting policies of the segments are in accordance with U.S. GAAP and are the same as
those described in the summary of significant accounting policies. The Company evaluates
performance based on U.S. GAAP net income before federal income taxes for its three
reportable segments.The acquisition of SPLIC and SPFIC created a new segment for the Company. SPLIC has
focused on writing ordinary whole life insurance utilizing the home service marketing
distribution method, whereby employee/agents working routes make regular collections of
premiums from clients. SPFIC also uses the home service method to write small fire
policies on Louisiana residents. This marketing method dates back to the creation of the
life insurance industry in the United States and SPLIC utilizes
approximately 400 agents
(approximately 300 of whom also represent SPFIC) to write and collect premiums.
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Geographic Areas  The following summary represents financial data of the Companys
continuing operations based on their location. 
 Three Months Ended June 30,2005
    
    2004Revenues:U.S.
    
    $
    14,095,971
    
    
    $
    4,269,472Non-U.S.
    
    
    20,098,893
    
    
    
    17,616,214Total Revenues
    
    $
    34,194,864
    
    
    $
    21,885,686
 The following summary, representing revenues, amortization expense and pre-tax income
from continuing operations and identifiable assets for the Companys reportable segments
for the periods indicated is as follows:
 Three Months Ended June 30,2005
    
    2004Revenues:International Life
    
    $
    20,098,893
    
    
    $
    17,616,214Home Service Business
    
    
    12,760,181
    
    
    
    Domestic Life
    
    
    1,065,291
    
    
    
    4,033,358Domestic Health
    
    
    270,499
    
    
    
    236,114Total Revenues
    
    $
    34,194,864
    
    
    $
    21,885,686Revenue, excluding net investment income
and realized gains:International Life
    
    $
    16,974,822
    
    
    $
    14,387,194Home Service Business
    
    
    9,907,089
    
    
    
    Domestic Life
    
    
    792,665
    
    
    
    3,255,201Domestic Health
    
    
    270,499
    
    
    
    236,114Total consolidated revenue, excluding net
investment income and realized gain on
investments
    
    $
    27,945,075
    
    
    $
    17,878,509Net investment income:International Life
    
    $
    2,717,827
    
    
    $
    3,056,672Home Service Business
    
    
    2,782,898
    
    
    
    Domestic Life
    
    
    202,516
    
    
    
    733,332Domestic Health
    
    
    
    
    
    
    Total consolidated net investment income
    
    $
    5,703,241
    
    
    $
    3,790,004Amortization expense:International Life
    
    $
    2,116,559
    
    
    $
    2,262,401Home Service Business
    
    
    914,221
    
    
    
    Domestic Life
    
    
    968,501
    
    
    
    700,376Domestic Health
    
    
    
    
    
    
    (7,774
    )Total consolidated amortization expense
    
    $
    3,999,281
    
    
    $
    2,955,003Realized gains on sale of investments and
other assets:International Life
    
    $
    406,244
    
    
    $
    172,348Home Service Business
    
    
    70,194
    
    
    
    Domestic Life
    
    
    70,110
    
    
    
    44,825Domestic Health
    
    
    
    
    
    
    Total consolidated realized gains on sale of
investments and other assets
    
    $
    546,548
    
    
    $
    217,173
  12




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##### Table of Contents



Three Months Ended June 30,2005
    
    2004Income (loss) before Federal income tax:International Life
    
    $
    506,155
    
    
    $
    1,771,248Home Service Business
    
    
    1,124,452
    
    
    
    Domestic Life
    
    
    (1,015,725
    )
    
    
    (323,601
    )Domestic Health
    
    
    109,707
    
    
    
    (14,984
    )Total consolidated income before
Federal income tax
    
    $
    724,589
    
    
    $
    1,432,663
 Major categories of premiums and annuity and universal life considerations are summarized
as follows:
 Three Months Ended June 30,2005
    
    2004Premiums and annuity and
universal life
considerations:Ordinary Life
    
    $
    17,258,276
    
    
    $
    16,516,081Annuity and
Universal Life
    
    
    669,691
    
    
    
    852,583Group Life
    
    
    159,090
    
    
    
    115,908Accident and Health
    
    
    270,499
    
    
    
    236,114Home Service Business
    
    
    9,905,098
    
    
    
    Total premiums
    
    $
    28,262,654
    
    
    $
    17,720,686
 Geographic Areas - The following summary represents
financial data of the Companys continuing operations based on
their location:
 Six Months Ended June 30,2005
    
    2004Revenues:U.S.
    
    $
    32,133,280
    
    
    $
    8,783,323Non-U.S.
    
    
    37,128,206
    
    
    
    33,207,326Total Revenues
    
    $
    69,261,486
    
    
    $
    41,990,649
 The following summary, representing revenues, amortization expense and pre-tax income
from continuing operations and identifiable assets for the Companys reportable segments
for the periods indicated is as follows:
 Six Months Ended June 30,2005
    
    2004Revenues:International Life
    
    $
    37,128,206
    
    
    $
    33,207,326Home Service Business
    
    
    25,595,606
    
    
    
    Domestic Life
    
    
    6,086,480
    
    
    
    8,335,352Domestic Health
    
    
    451,194
    
    
    
    447,971Total Revenues
    
    $
    69,261,486
    
    
    $
    41,990,649
 13




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##### Table of Contents



Six Months Ended June 30,2005
    
    2004Revenue, excluding net investment income
and realized gains:International Life
    
    $
    31,859,553
    
    
    $
    26,943,412Home Service Business
    
    
    19,697,110
    
    
    
    Domestic Life
    
    
    5,158,756
    
    
    
    6,678,549Domestic Health
    
    
    451,194
    
    
    
    447,971Total consolidated revenue, excluding net
investment income and realized gains on
investments
    
    $
    57,166,613
    
    
    $
    34,069,932Net investment income:International Life
    
    $
    4,851,409
    
    
    $
    6,061,158Home Service Business
    
    
    5,773,535
    
    
    
    Domestic Life
    
    
    854,254
    
    
    
    1,603,174Domestic Health
    
    
    
    
    
    
    Total consolidated net investment income
    
    $
    11,479,198
    
    
    $
    7,664,332Amortization expense:International Life
    
    $
    3,921,799
    
    
    $
    4,578,771Home Service Business
    
    
    1,727,047
    
    
    
    Domestic Life
    
    
    1,471,461
    
    
    
    1,749,548Domestic Health
    
    
    
    
    
    
    Total consolidated amortization expense
    
    $
    7,120,307
    
    
    $
    6,328,319Realized gains on sale of investments and
other assets:International Life
    
    $
    417,244
    
    
    $
    202,756Home Service Business
    
    
    124,961
    
    
    
    Domestic Life
    
    
    73,470
    
    
    
    53,629Domestic Health
    
    
    
    
    
    
    Total consolidated realized gains on sale of
investments and other assets
    
    $
    615,675
    
    
    $
    256,385Income (loss) before Federal income tax:International Life
    
    $
    2,841,964
    
    
    $
    2,993,076Home Service Business
    
    
    2,036,401
    
    
    
    Domestic Life
    
    
    (943,402
    )
    
    
    (462,920
    )Domestic Health
    
    
    141,848
    
    
    
    (620,899
    )Total consolidated income before
Federal income tax
    
    $
    4,076,811
    
    
    $
    1,909,257
 14




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##### Table of Contents



June 30, 2005
    
    December 31, 2004Assets:International Life
    
    $
    244,281,528
    
    
    $
    225,359,680Home Service Business
    
    
    278,570,431
    
    
    
    298,396,206Domestic Life
    
    
    113,766,484
    
    
    
    123,160,286Domestic Health
    
    
    12,081,397
    
    
    
    14,295,390Total
    
    $
    648,699,840
    
    
    $
    661,211,562
  Six
Months Ended June 30,2005
    
    2004Premiums and annuity and
universal life
considerations:Ordinary Life
    
    $
    34,912,468
    
    
    $
    31,309,919Annuity and
Universal Life
    
    
    1,465,064
    
    
    
    1,769,820Group Life
    
    
    318,180
    
    
    
    231,815Accident and Health
    
    
    451,194
    
    
    
    447,971Home Service Business
    
    
    19,695,119
    
    
    
    Total premiums
    
    $
    56,842,025
    
    
    $
    33,759,525
 (5)
    
    Accumulated Other Comprehensive Income (Loss)For the three and six months ended June 30, 2005, the other comprehensive income amounts
included in total comprehensive income consisted of unrealized gains on investments in
fixed maturities and equity securities available-for-sale of
$6,830,250 and $4,109,563,
respectively, net of tax, and for the same period in 2004 unrealized losses of
$(5,252,461) and $(3,754,759), respectively, net of tax. Total comprehensive income for the
three and six months ended June 30, 2005, was $7,192,575 and $6,831,374, respectively,
net of tax, and for the same period in 2004, total comprehensive loss
of $(4,367,513) and $(2,498,068), respectively, net of tax.(6)
    
    Earnings Per ShareBasic and diluted earnings per share have been computed using the weighted average
number of shares of common stock outstanding during each period. The weighted average shares outstanding for the three and six months ended June 30, 2005, were 38,393,453 and
38,381,685, respectively. The weighted average shares outstanding for both the three
and six months ended June 30, 2004, were 38,317,079. The per share amounts have been
adjusted retroactively for all periods presented to reflect the change in capital
structure resulting from a 7% stock dividend paid in 2004. The 2004 stock dividend
resulted in the issuance of 2,690,039 Class A shares (including 191,722 shares in
treasury) and 61,246 Class B shares.On March 4, 2004, at a special meeting of the Companys shareholders, the Companys
Articles of Incorporation were amended to increase the number of authorized shares of
its Class A and Class B common stock from 50,000,000 to 100,000,000 and from 1,000,000
to 2,000,000, respectively. In addition, a class of 25,000,000 shares of preferred
stock was authorized to be available for future issuance in series with terms and
preferences designated by the Companys Board of Directors. The Company completed a
private placement of $12.5 million of Series A-1 Convertible Preferred Stock in July
2004. In addition, on September 30, 2004, the Company declared its initial 4% dividend
to the Series A-1 Convertible Preferred Stock shareholders. On December 31, 2004, the
Company paid the second quarterly
 15




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##### Table of Contents



dividend, consisting of 20,948 shares of its Class A
common stock valued at $133,439. The Company paid the initial dividend in early October
2004 by issuing 19,396 shares of its Class A common stock valued at $115,794. On March
31, 2005, the Company paid the third quarterly dividend, consisting of 23,536 shares of
its Class A common stock valued at $130,860. On June 30, 2005, the Company paid the
fourth quarterly dividend, consisting of 21,712 shares of its Class A common stock
valued at $132,443.On July 6, 2005 one of the four investors exercised their right to purchase Series A-2
preferred shares. The Company issued 1,338 Series A-2 preferred shares and 52,544 cash
warrants with an exercise price of $6.54, and received $1,250,000 in consideration
thereof.The following table sets forth the computation of basic and dilutive earnings per share:
 Three Months EndedJune 30,2005
    
    2004Basic and diluted income per share:Numerator:Net income
    
    $
    362,325
    
    
    $
    884,948Less: Preferred stock dividend
    
    
    (132,443
    )
    
    
    Accretion of deferred
issuance costs and
discounts
on
preferred stock
    
    
    (363,901
    )
    
    
    Net income (loss) to common
stockholders
    
    $
    (134,019
    )
    
    $
    884,948Denominator:Weighted average shares outstanding
    
    
    38,393,453
    
    
    
    38,317,079Basic and diluted income per share
    
    $
    0.00
    
    
    $
    0.02
 Six Months EndedJune 30,2005
    
    2004Basic and diluted income per share:Numerator:Net income
    
    $
    2,721,811
    
    
    $
    1,256,691Less: Preferred stock dividend
    
    
    (263,303
    )
    
    
    Accretion of deferred
issuance costs and
discounts
on preferred stock
    
    
    (727,801
    )
    
    
    Net income to common stockholders
    
    $
    1,730,707
    
    
    $
    1,256,691Denominator:Weighted average shares outstanding
    
    
    38,381,685
    
    
    
    38,317,079Basic and diluted income per share
    
    $
    0.05
    
    
    $
    0.03
  16




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##### Table of Contents



(7)
    
    Accounting PronouncementsIn 2004, the FASB issued a revision of SFAS No. 123, Accounting for Stock-Based
Compensation. This Statement supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and its related implementation guidance and establishes standards
for the accounting for transactions in which an entity exchanges its equity instruments
for goods or services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value of the
entitys equity instruments or that may be settled by the issuance of those equity
instruments. This Statement focuses primarily on accounting for transactions in which
an entity obtains employee services in share-based payment transactions. It does not
change the accounting guidance for share-based payment transactions with parties other
than employees provided in Statement 123 as originally issued and EITF Issue No. 96-18,
Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services, nor does it address the
accounting for employee share ownership plans, which are subject to AICPA Statement of
Position 93-6, Employers Accounting for Employee Stock Ownership Plans. SFAS 123 as
amended is effective for interim reporting periods beginning after June 30, 2005.
However, in 2005 the SEC has issued a rule that will allow the Company to adopt the
provisions of SFAS 123, as amended, at the beginning of the first annual period starting
after June 15, 2005. The Company does not expect the adoption of the revision of SFAS
No. 123 to have a material affect on the financial position, results of operations or
liquidity of the Company.(8)
    
    Legal ProceedingsOn April 24, 2003, the Court of Appeals for the Third District of Texas affirmed in part
and modified in part, a July 31, 2002, class action certification granted by a Travis
County, Texas district court judge to the plaintiffs in a lawsuit filed in 1999 styled
Delia Bolanos Andrade, et al v. Citizens Insurance Company of America, Citizens,
Inc., Negocios Savoy, S.A., Harold E. Riley, and Mark A. Oliver, Case Number
99-09099. The suit alleges that life insurance policies offered or sold to certain
non-U.S. residents by CICA when combined with a policy feature which
allows policy dividends to be assigned to a non-U.S. trust for the
purpose of accumulating ownership of our Class A common stock,
as well as allowing the policy holder to make additional
contributions to the trust, are actually securities that were offered or sold in Texas
by unregistered dealers in violation of the registration provisions of the Texas
securities laws. The suit seeks class action status naming as a class all non-U.S.
residents who purchased insurance policies or made premium payments since August 1996
and assigned policy dividends to a non-U.S. trust for the purchase of the Companys
Class A common stock. The remedy sought is rescission of the insurance premium
payments. The Supreme Court of Texas granted the Companys Petition for Review and
heard oral arguments on the case on October 21, 2004. The Company believes the
Plaintiffs claim under the Texas Securities Act is not valid and the class defined is
not appropriate for class certification and does not meet the legal requirements for
class action treatment under Texas law.
 17




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##### Table of Contents



Recent decisions from the Texas Supreme Court indicate a more
rigorous and scrutinizing approach
to class certification cases, especially in class action cases encompassing claimants
from more than one state or jurisdiction. Although a decision is not expected until
sometime in the second half of 2005, the Company expects the Supreme Court of Texas
will ultimately rule in the Companys favor, decertify the class and remand the matter
to district court for further action. During the time of the Companys appeal to the
Texas Supreme Court, there are no further district court proceedings in the case. The
Company is unable to determine the potential magnitude of the claims in the event of a
final class certification and the plaintiffs prevailing on the substantive action,
although the Company would expect a significant adverse financial impact from any final
class action judgment.The Company is a party to various legal proceedings incidental to its business. The
Company has been named as a defendant in various legal actions seeking payments for
claims denied by the Company and other monetary damages. In the opinion of management,
the ultimate liability, if any, resulting from any contingent liabilities that might
arise from litigation are not considered material in relation to the financial position
or results of operations of the Company. Reserves for claims payable are based on the
expected claim amount to be paid after a case-by-case review of the facts and
circumstances relating to each claim. A contingency exists with regard to these
reserves until the claims are adjudicated and paid.
 18




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##### Table of Contents



ITEM 2
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
  
    
    the issuance of ordinary life insurance in U.S. dollar denominated amounts to
foreign nationals with significant net worth; and
    
    offering final expense ordinary life insurance through the home service
distribution channel in Louisiana.
  International Life.
  Home Service Life.
  19




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##### Table of Contents



Domestic Life.
   Marketplace Conditions and Trends
  
    
    As an increasing percentage of the world population reaches retirement age, we
believe we will benefit from increased demand for living products rather than death
products, as aging baby boomers will require cash accumulation to provide expenses to
meet their lifetime needs. Our ordinary life products are
designed for our policyowners to accumulate cash values to provide for living expenses
in the insureds later years while continuously providing a death benefit.
 
    
    The volatility in the equity markets over the past few years has posed a number of
problems for some companies in the life insurance industry. Even though the capital
markets have recovered, not all companies have participated evenly in the recovery. We
historically have had minimal equity exposure, including less than 1% of total
invested assets as of June 30, 2005 and December 31, 2004, and we plan to continue to
have minimal assets in equity investments in the future.
    
    Corporate bond defaults and credit downgrades, which have
resulted in other-than-temporary impairment in the value of many securities, have had a material impact on
life insurers in the past few years. We have not incurred losses from bond defaults
for many years. The majority of our investment portfolio is held in debt instruments
carrying the implied full faith and credit of the U.S. Government. We intend to
 20




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##### Table of Contents




    
    Some life insurance companies have recently suffered significant reductions in
capital and will have to improve their capital adequacy ratios to support their
business or divest a portion of their business. We have not experienced any capital
reductions and do not anticipate this trend will affect us.
    
    Because of the trends described above coupled with increasing costs of regulatory
compliance such as the Sarbanes-Oxley Act of 2002, we believe there is a trend towards
consolidation of domestic life insurance companies. We believe this should be a
benefit to our acquisition strategy because there should be more complementary
acquisition candidates available for us to consider acquiring.
    
    Many of the events and trends affecting the life insurance industry have had an
impact on the life reinsurance industry. These events led to a decline in the
availability of reinsurance. While we currently cede a limited amount of our primary
insurance business to reinsurers, we may find it difficult to obtain reinsurance in
the future, forcing us to seek reinsurers who are more expensive to us. If we cannot
obtain affordable reinsurance coverage, either our net exposures will increase or we
would have to reduce our underwriting commitments.
    
    Recently announced governmental investigations and litigation alleging the illegal
use of bid-rigging schemes and contingent commissions by insurance companies and
brokers may adversely affect our industry and us by negatively impacting the level and
volatility of stock prices of companies operating in the insurance industry. As a
result of these investigations and litigation, industry
regulation, practices and customs change in ways that are detrimental to our business
strategy. We do not use contingent commissions or bids in our insurance operations.
 Significant Recent Transactions
 Acquisition of Security Plan
   21




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##### Table of Contents



Cessation of Accident and Health Business
  Quarter Ended June 30, 2005 Compared to the Quarter Ended June 30, 2004
 Overview
  Consolidated Results
  Quarter
    
    
    
    
    
    Net IncomeEnded
    
    Net Income
    
    Per Class A and BJune 30
    
    (In thousands)
    
    Common Share2005
    
    $
    362
    
    
    $
    0.002004
    
    
    885
    
    
    
    0.02
   Premium Income
 22




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##### Table of Contents



Net Investment Income
 Realized
Gains
 Reserves
 Policy Dividends
 Claims and Surrenders
 Three Months Ended June 30,2005
    
    2004(In thousands)Death claims
    
    $
    5,837
    
    
    $
    1,385Surrender benefits
    
    
    4,438
    
    
    
    4,210Endowments
    
    
    2,138
    
    
    
    1,824Accident and health benefits
    
    
    125
    
    
    
    30Other policy benefits
    
    
    685
    
    
    
    195Total claims and surrenders
    
    $
    13,223
    
    
    $
    7,644
     23




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##### Table of Contents



Commissions
 Underwriting, Acquisition and Insurance Expense
 Deferred Policy Acquisition Costs
 Cost of Customer Relationships Acquired.
 Increase
in Fair Value of Options and Warrants.
 Federal
Income Tax Expense.
 24




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##### Table of Contents



Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
 Overview
   Consolidated Results
  Six Months
    
    
    
    
    
    Net IncomeEnded
    
    Net Income
    
    
    Per Class A and BJune 30
    
    (In thousands)
    
    
    Common Share2005
    
    $
    2,722
    
    
    $
    0.052004
    
    
    1,257
    
    
    
    0.03
  Premium Income
 Net Investment Income
 Federal
Income Tax Expense
 25




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##### Table of Contents



Reserves
 Policy Dividends
 Claims and Surrenders
 Six Months Ended June 30,2005
    
    
    2004(In thousands)Death claims
    
    $
    12,142
    
    
    $
    3,303Surrender
benefits
    
    
    8,148
    
    
    
    9,165Endowments
    
    
    4,047
    
    
    
    3,358Accident and health benefits
    
    
    246
    
    
    
    138Other policy benefits
    
    
    1,350
    
    
    
    325Total claims and surrenders
    
    $
    25,933
    
    
    $
    16,289
      26




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##### Table of Contents



Commissions
 Underwriting, Acquisition and Insurance Expense
 Deferred Policy Acquisition Costs
 Cost
of Customer Relationships Acquired
 Increase
in Fair Value of Options and Warrants.
 Liquidity and Capital Resources
   27




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28




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##### Table of Contents




    
    pay cash dividends on our Class A or Class B common stock;
    
    incur any substantial indebtedness or capital expenditures;
    
    merge or consolidate with another entity; or
    
    issue our stock except in connection with acquisitions and public offerings.
  29




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##### Table of Contents



Contractual
    
    
    
    
    
    Less than
    
    
    1 to 3
    
    
    3 to 5
    
    
    More thanObligation
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 years(In Thousands)Operating leases
    
    $
    954
    
    
    $
    469
    
    
    $
    429
    
    
    $
    56
    
    
    $
    Other
    
    
    450
    
    
    
    300
    
    
    
    150
    
    
    
    
    
    
    
    Total operating
leases and other
    
    $
    1,404
    
    
    $
    769
    
    
    $
    579
    
    
    $
    56
    
    
    $
    Future policy benefit reserves:Life insurance
    
    $
    425,646
    
    
    $
    158
    
    
    
    888
    
    
    $
    8,332
    
    
    $
    416,268Annuities
    
    
    18,400
    
    
    
    4,549
    
    
    
    2,774
    
    
    
    5,059
    
    
    
    6,018Accident and health
    
    
    12,400
    
    
    
    12,400
    
    
    
    
    
    
    
    
    
    
    
    Total future policy
benefit reserves
    
    $
    456,446
    
    
    $
    17,107
    
    
    $
    3,662
    
    
    $
    13,391
    
    
    $
    422,286Policy claims payable:Life insurance
    
    $
    5,890
    
    
    $
    5,890
    
    
    
    
    
    
    
    
    
    
    
    Accident and health
    
    
    2,505
    
    
    
    2,505
    
    
    
    
    
    
    
    
    
    
    
    Total policy
claims payable
    
    $
    8,395
    
    
    $
    8,395
    
    
    $
    
    
    
    $
    
    
    
    $
    Series A-1
preferred stock
    
    $
    6,629
    
    
    $
    
    
    
    $
    
    
    
    $
    6,629
    
    
    $
    Total contractual obligations
    
    $
    472,874
    
    
    $
    26,271
    
    
    $
    4,241
    
    
    $
    20,076
    
    
    $
    422,286
  Parent Company Liquidity and Capital Resources
   Critical Accounting Policies
  Policy Liabilities
  30




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##### Table of Contents



Deferred Policy Acquisition Costs
     31




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Valuation of Investments in Fixed Maturity and Equity Securities
   32




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##### Table of Contents



ITEM 3
 QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
   33




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##### Table of Contents



June 30, 2005
(In thousands)
 Decreases in Interest Rates
    
    Increases in Interest Rates300 Basis
    
    200 Basis
    
    100 Basis
    
    100 Basis
    
    200 Basis
    
    300 BasisPoints
    
    Points
    
    Points
    
    Points
    
    Points
    
    Points$
    64,755
    
    
    $
    43,401
    
    
    $
    24,972
    
    
    $
    (23,037
    )
    
    $
    (50,090
    )
    
    $
    (75,843
    )
 December 31, 2004
(In thousands)
 Decreases in Interest Rates
    
    Increases in Interest Rates300 Basis
    
    200 Basis
    
    100 Basis
    
    100 Basis
    
    200 Basis
    
    300 BasisPoints
    
    Points
    
    Points
    
    Points
    
    Points
    
    Points$
    69,321
    
    
    $
    47,412
    
    
    $
    28,368
    
    
    $
    (20,298
    )
    
    $
    (48,702
    )
    
    $
    (74,613
    )
   Market Risk Related to Equity Price s
  34




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##### Table of Contents



ITEM 4
 CONTROLS AND PROCEDURES
 (a) Disclosure Controls and Procedures
        35




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##### Table of Contents




    
    failure to evaluate the valuation allowance on our deferred tax account;
    
    failure to maintain end user controls over the Excel file for payment of certain
insurance commissions;
    
    failure to document and test certain reinsurance processes;
    
    failure to adequately review market values of certain fixed income securities;
    
    failure to maintain end user controls relating to market value adjustments of
certain investment securities provided by a broker-dealer; and
    
    failure to maintain adequate documentation and controls regarding certain payroll
procedures.
 (b) Change in Internal Control over Financial Reporting
    
    
    Hiring a new Vice President, Financial Reporting and Tax, with significant
experience in U.S. GAAP and SEC reporting who will be responsible for the preparation
and supervision of the Companys financial statements. This individual reports directly
to the Chief Executive Officer. This was accomplished in June 2005. In addition, we
plan on assuring that at least one other person is fully trained and experienced to
step in and perform the duties of the Vice President, Financial Reporting and Tax if he
should, for any reason, be unable to do so.
 36




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##### Table of Contents




    
    Hiring new personnel to work with the Vice President, Financial Reporting and Tax to
develop additional expertise in U.S. GAAP and SEC reporting and to insure that adequate
depth is developed in the Companys financial reporting area.
    
    Strengthening the process of work paper review by senior members of management to
ensure the completeness and accuracy of supporting work papers and schedules, including
formalized sign-off processes.
    
    Additional training of accounting department personnel in U.S. GAAP and SEC
reporting. This is ongoing during 2005.
    
    Adopt procedures to seek a more thorough and timely review process by senior
management of the financial statement process.We believe these efforts will address the material weakness identified by management during
its assessment of internal control overfinancial reporting.
 37




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##### Table of Contents



PART II. OTHER INFORMATION
 Item 1. Legal Proceedings
 Delia Bolanos Andrade, et al v. Citizens Insurance Company of America, Citizens,
Inc., Negocios Savoy, S.A., Harold E. Riley, and Mark A. Oliver, Case Number
99-09099
   38




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##### Table of Contents



Item 2. Changes in Securities
  Item 3. Defaults upon Senior Securities
  Item 4. Submission of Matters to a Vote of Security Holders
  
    
    we considered and approved a proposal to elect the following Class B
Directors for the ensuing year, or until their successors are elected and qualified:
 
 
    
    we considered and approved a proposal to elect the following Class A
Directors for the ensuing year, or until their successors are elected and qualified:
 
 Item 5. Other Information
  39




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##### Table of Contents



Item 6.
    
    Exhibits3.1
    
    Restated and Amended Articles of Incorporation (a)3.2
    
    Bylaws (b)3.3
    
    Amendment to State Series A-1 and A-2 Senior Convertible Preferred Stock (j)10.1
    
    Self-Administered Automatic Reinsurance Agreement  Citizens Insurance Company of
America and Riunione Adriatica di Sicurta, S.p.A. (c)10.2
    
    Bulk Accidental Death Benefit Reinsurance Agreement between Connecticut General Life
Insurance Company and Citizens Insurance Company of America, as amended (d)10.3
    
    Plan and Agreement of Exchange between Citizens, Inc. and Combined Underwriters Life
Insurance Company (e)10.4
    
    Plan and Agreement of Exchange between Citizens, Inc. and Lifeline Underwriters Life
Insurance Company (f)10.5
    
    Plan and Agreement of Merger by and among Citizens, Inc., Citizens Acquisition, Inc.
and First Alliance Corporation (g)10.6
    
    Plan and Agreement of Merger by and among Citizens, Inc., Citizens Acquisition, Inc.
and Mid-American Alliance Corporation. (h)10.12(a)
    
    Securities Purchase Agreement dated July 12, 2004 among Citizens, Inc., Mainfield
Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and
Smithfield Fiduciary LLC (j)10.12(b)
    
    Registration Rights Agreement dated July 12, 2004 among Citizens, Inc., Mainfield
Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and
Smithfield Fiduciary LLC (j)10.12(c)
    
    Unit Warrant dated July 12, 2004, to Mainfield Enterprises, Inc. (j)10.12(d)
    
    Unit Warrant dated July 12, 2004, to Steelhead Investments Ltd. (j)10.12(e)
    
    Unit Warrant dated July 12, 2004, to Portside Growth and Opportunity Fund (j)10.12(f)
    
    Unit Warrant dated July 12, 2004, to Smithfield Fiduciary LLC (j)10.12(g)
    
    Warrant to Purchase Class A Common Stock to Mainfield Enterprises, Inc. (j)10.12(h)
    
    Warrant to Purchase Class A Common Stock to Steelhead Investments Ltd. (j)10.12(i)
    
    Warrant to Purchase Class A Common Stock to Portside Growth and Opportunity Fund (j)10.12(j)
    
    Warrant to Purchase Class A Common Stock to Smithfield Fiduciary LLC (j)10.12(k)
    
    Subordination Agreement among Regions Bank, the Purchasers and Citizens, Inc. dated July 12, 2004 (j)10.12(l)
    
    Non-Exclusive Finders Agreement dated September 29, 2003, between Citizens, Inc. and
the Shemano Group, Inc. (j)11.0
    
    Statement re: Computation of per share earnings (j)31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act*31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act*32.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*32.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*99.1
    
    Press Release of July 12, 2004 relating to the announcement by Citizens, Inc. of its
completion of a private placement of its Series A-1 and A-2 Senior Convertible Preferred
Stock with four independent institutional investors (j)
 
 *
    
    Filed herewith.(a)
    
    Filed with the Registrants Annual Report on Form 10-K for the year ended December 31,
2003.(b)
    
    Filed with the Registrants Registration Statement on Form S-4, Registration No.
33-59039, filed with the Commission on May 2, 1995.(c)
    
    Filed as Exhibit 10.8 with the Registration Statement on Form S-4, SEC File No.
333-16163, filed on or about November 4, 1996.(d)
    
    Filed as Exhibit 10.9 with the Registrants Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference.(e)
    
    Filed as Appendix A with the Registrants Registration Statement on Form S-4,
Registration No. 333-76926 dated January 18, 2002 and incorporated herein by reference.(f)
    
    Filed as Appendix B with the Registrants Registration Statement on Form S-4,
Registration No. 333-76926 dated January 18, 2002, and incorporated herein by reference.(g)
    
    Filed as Appendix A with the Registrants Registration Statement on Form S-4,
Registration No. 333-102016 dated December 19, 2002, and incorporated herein by reference.(h)
    
    Filed as Appendix A with the Registrants Registration Statement on Form S-4,
Registration No. 333-106128 dated June 13, 2003, and incorporated herein by reference.(i)
    
    See Note 6 to the Notes to Consolidated Financial Statements included in Item 1 of Part
1 of this Form 10-Q.(j)
    
    Filed with the Registrants Periodic Report on Form 8-K on July 15, 2004 and
incorporated herein by reference. 40




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##### Table of Contents



SIGNATURES
  CITIZENS, INC.By:
    /s/ Mark A. OliverMark A. OliverChief Executive Officer and President By:
    /s/ Larry E. CarsonLarry E. CarsonVice President, Chief Financial Officer and
Treasurer  41




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##### Table of Contents



Exhibit Index
 3.1
    
    Restated and Amended Articles of Incorporation (a)3.2
    
    Bylaws (b)3.3
    
    Amendment to State Series A-1 and A-2 Senior Convertible Preferred Stock (j)10.1
    
    Self-Administered Automatic Reinsurance Agreement  Citizens Insurance Company of
America and Riunione Adriatica di Sicurta, S.p.A. (c)10.2
    
    Bulk Accidental Death Benefit Reinsurance Agreement between Connecticut General Life
Insurance Company and Citizens Insurance Company of America, as amended (d)10.3
    
    Plan and Agreement of Exchange between Citizens, Inc. and Combined Underwriters Life
Insurance Company (e)10.4
    
    Plan and Agreement of Exchange between Citizens, Inc. and Lifeline Underwriters Life
Insurance Company (f)10.5
    
    Plan and Agreement of Merger by and among Citizens, Inc., Citizens Acquisition, Inc.
and First Alliance Corporation (g)10.6
    
    Plan and Agreement of Merger by and among Citizens, Inc., Citizens Acquisition, Inc.
and Mid-American Alliance Corporation. (h)10.12(a)
    
    Securities Purchase Agreement dated July 12, 2004 among Citizens, Inc., Mainfield
Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and
Smithfield Fiduciary LLC (j)10.12(b)
    
    Registration Rights Agreement dated July 12, 2004 among Citizens, Inc., Mainfield
Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and
Smithfield Fiduciary LLC (j)10.12(c)
    
    Unit Warrant dated July 12, 2004, to Mainfield Enterprises, Inc. (j)10.12(d)
    
    Unit Warrant dated July 12, 2004, to Steelhead Investments Ltd. (j)10.12(e)
    
    Unit Warrant dated July 12, 2004, to Portside Growth and Opportunity Fund (j)10.12(f)
    
    Unit Warrant dated July 12, 2004, to Smithfield Fiduciary LLC (j)10.12(g)
    
    Warrant to Purchase Class A Common Stock to Mainfield Enterprises, Inc. (j)10.12(h)
    
    Warrant to Purchase Class A Common Stock to Steelhead Investments Ltd. (j)10.12(i)
    
    Warrant to Purchase Class A Common Stock to Portside Growth and Opportunity Fund (j)10.12(j)
    
    Warrant to Purchase Class A Common Stock to Smithfield Fiduciary LLC (j)10.12(k)
    
    Subordination Agreement among Regions Bank, the Purchasers and Citizens, Inc. dated July 12, 2004 (j)10.12(l)
    
    Non-Exclusive Finders Agreement dated September 29, 2003, between Citizens, Inc. and
the Shemano Group, Inc. (j)11.0
    
    Statement re: Computation of per share earnings (j)31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act*31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act*32.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*32.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*99.1
    
    Press Release of July 12, 2004 relating to the announcement by Citizens, Inc. of its
completion of a private placement of its Series A-1 and A-2 Senior Convertible Preferred
Stock with four independent institutional investors (j)
 
 *
    
    Filed herewith.(a)
    
    Filed with the Registrants Annual Report on Form 10-K for the year ended December 31,
2003.(b)
    
    Filed with the Registrants Registration Statement on Form S-4, Registration No.
33-59039, filed with the Commission on May 2, 1995.(c)
    
    Filed as Exhibit 10.8 with the Registration Statement on Form S-4, SEC File No.
333-16163, filed on or about November 4, 1996.(d)
    
    Filed as Exhibit 10.9 with the Registrants Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference.(e)
    
    Filed as Appendix A with the Registrants Registration Statement on Form S-4,
Registration No. 333-76926 dated January 18, 2002 and incorporated herein by reference.(f)
    
    Filed as Appendix B with the Registrants Registration Statement on Form S-4,
Registration No. 333-76926 dated January 18, 2002, and incorporated herein by reference.(g)
    
    Filed as Appendix A with the Registrants Registration Statement on Form S-4,
Registration No. 333-102016 dated December 19, 2002, and incorporated herein by reference.(h)
    
    Filed as Appendix A with the Registrants Registration Statement on Form S-4,
Registration No. 333-106128 dated June 13, 2003, and incorporated herein by reference.(i)
    
    See Note 6 to the Notes to Consolidated Financial Statements included in Item 1 of Part
1 of this Form 10-Q.(j)
    
    Filed with the Registrants Periodic Report on Form 8-K on July 15, 2004 and
incorporated herein by reference.