##### Table of Contents



United States
Securities and Exchange Commission
 Washington, D.C. 20549
 FORM 10-QSB
  þ
    
    Quarterly report pursuant to section 13 or 15(d) of the securities
exchange act of 1934
 For the quarterly period ended September 30, 2007
 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 1.000-52613
 FIRST TRINITY FINANCIAL CORPORATION
  Oklahoma
    
    34-1991436(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer number)
  
  (918) 249-2438
 N/A
 þ o
  o þ
 5,805,000 shares
 o þ




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##### 



INDEX TO FORM 10-QSB
 PART I. FINANCIAL INFORMATION
 PageItem 1. Condensed Consolidated Financial Statements
    
    
    3Condensed Consolidated Balance Sheets at September 30, 2007 (Unaudited) and December 31, 2006Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006 (Unaudited)Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006 (Unaudited)Notes to Condensed Consolidated Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Controls and Procedures
    
    
    16Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    17Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    17Item 3. Defaults Upon Senior Securities
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17Item 5. Other Information
    
    
    17Item 6. Exhibits
    
    
    17Signatures
    
    
    17Exhibit 10.5Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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September 30,
    
    
    December 31,2007
    
    
    2006Assets
    
    (Unaudited)InvestmentsAvailable-for-sale fixed maturities at fair value
(amortized cost: $300,000 and $298,256 at September 30, 2007
and December 31, 2006, respectively)
    
    $
    300,000
    
    
    $
    297,680Total investments
    
    
    300,000
    
    
    
    297,680Cash and cash equivalents
    
    
    10,035,771
    
    
    
    10,677,554Accrued investment income
    
    
    12,182
    
    
    
    9,650Premiums receivable
    
    
    13,204
    
    
    
    Advances to agents
    
    
    24,163
    
    
    
    171Reinsurance recoverable
    
    
    2,536
    
    
    
    Deferred policy acquisition costs
    
    
    286,869
    
    
    
    Office furniture and equipment
(net of accumulated depreciation: $15,335 and $8,723
at September 30, 2007 and December 31, 2006, respectively)
    
    
    55,211
    
    
    
    51,359Loans from premium financing
    
    
    1,714,427
    
    
    
    Other assets
    
    
    18,912
    
    
    
    13,472Total assets
    
    $
    12,463,275
    
    
    $
    11,049,886Liabilities and Shareholders EquityBenefit reserves
    
    $
    340,697
    
    
    $
    Policy claims
    
    
    8,896
    
    
    
    Deposits on pending policy applications
    
    
    142,760
    
    
    
    Accounts payable and accrued expenses
    
    
    69,475
    
    
    
    70,769Total liabilities
    
    
    561,828
    
    
    
    70,769Shareholders equityCommon stock subscribed
    
    
    
    
    
    
    25,059Common stock, par value $.01 per share
8,000,000 shares authorized, 5,805,000 and 3,000,000 issued and
outstanding at September 30, 2007 and December 31, 2006, respectively
    
    
    58,050
    
    
    
    30,000Additional paid-in capital
    
    
    13,806,503
    
    
    
    12,498,891Accumulated other comprehensive income (loss)
    
    
    
    
    
    
    (576
    )Accumulated deficit
    
    
    (1,963,106
    )
    
    
    (1,574,257
    )Total shareholders equity
    
    
    11,901,447
    
    
    
    10,979,117Total liabilities and shareholders equity
    
    $
    12,463,275
    
    
    $
    11,049,886
 See notes to financial statements.
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Nine months ended
    
    
    Three months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006RevenuesPremium income
    
    $
    585,169
    
    
    $
    
    
    
    $
    252,411
    
    
    $
    Income from premium financing
    
    
    110,819
    
    
    
    
    
    
    
    61,365
    
    
    
    Net investment income
    
    
    385,605
    
    
    
    189,150
    
    
    
    123,386
    
    
    
    91,519Other income
    
    
    3,000
    
    
    
    40
    
    
    
    
    
    
    
    21Total revenues
    
    
    1,084,593
    
    
    
    189,190
    
    
    
    437,162
    
    
    
    91,540ExpensesDeath benefits
    
    
    93,164
    
    
    
    
    
    
    
    8,404
    
    
    
    Death benefits ceded
    
    
    (29,307
    )
    
    
    
    
    
    
    (1,498
    )
    
    
    Net death benefits
    
    
    63,857
    
    
    
    
    
    
    
    6,906
    
    
    
    Increase in benefit reserves
    
    
    339,646
    
    
    
    
    
    
    
    150,953
    
    
    
    Acquisition costs deferred
    
    
    (376,865
    )
    
    
    
    
    
    
    (167,769
    )
    
    
    Amortization of deferred acquisition
costs
    
    
    89,996
    
    
    
    
    
    
    
    37,355
    
    
    
    Commissions
    
    
    318,468
    
    
    
    
    
    
    
    133,079
    
    
    
    Loan fees
    
    
    16,344
    
    
    
    
    
    
    
    16,344
    
    
    
    Salaries and wages
    
    
    430,121
    
    
    
    315,769
    
    
    
    114,271
    
    
    
    131,677Other insurance and administrative
expenses
    
    
    591,875
    
    
    
    255,677
    
    
    
    221,078
    
    
    
    57,967Total expenses
    
    
    1,473,442
    
    
    
    571,446
    
    
    
    512,217
    
    
    
    189,644Net loss
    
    $
    (388,849
    )
    
    $
    (382,256
    )
    
    $
    (75,055
    )
    
    $
    (98,104
    )Net loss per common share basic and diluted
    
    $
    (0.07
    )
    
    $
    (0.09
    )
    
    $
    (0.01
    )
    
    $
    (0.02
    )
 See notes to financial statements.
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Nine months ended September 302007
    
    
    2006Net cash used in operating activites
    
    $
    (227,496
    )
    
    $
    (389,768
    )Investing activitiesPurchase of fixed maturities
    
    
    
    
    
    
    (297,672
    )Purchase of certificates of deposit
    
    
    
    
    
    
    (2,500,000
    )Sale of certificates of deposit
    
    
    
    
    
    
    2,500,000Loans for premiums financed
    
    
    (1,714,427
    )
    
    
    Net additions to furniture and equipment
    
    
    (10,463
    )
    
    
    (39,577
    )Net cash used in investing activities
    
    
    (1,724,890
    )
    
    
    (337,249
    )Financing activitiesProceeds from public stock offering
    
    
    1,495,480
    
    
    
    7,325,419Cost of stock offering
    
    
    (184,877
    )
    
    
    (787,680
    )Net cash provided by financing activities
    
    
    1,310,603
    
    
    
    6,537,739Increase (decrease) in cash
    
    
    (641,783
    )
    
    
    5,810,722Cash and cash equivalents, beginning of period
    
    
    10,677,554
    
    
    
    3,000,135Cash and cash equivalents, end of period
    
    $
    10,035,771
    
    
    $
    8,810,857
 See notes to financial statements.
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##### Table of Contents



1.
    
    Organization and Accounting PoliciesNature of OperationsFirst Trinity Financial Corporation, (the Company) was incorporated in Oklahoma on April 19,
2004, for the primary purpose of organizing a life insurance subsidiary. The Company raised
$1,450,000 from two private placement stock offerings during 2004. On June 22, 2005 the
Companys intra-state public stock offering filed with the Oklahoma Department of Securities
for a $12,750,000 intrastate public stock offering, which included a 10% over-sale provision
(additional sales of $1,275,000), was declared effective. The offering was completed February
23, 2007. The Company raised $14,025,000 from this offering.The Company has two wholly owned subsidiaries domiciled in Oklahoma, First Trinity Capital
Corporation (FTCC) and Trinity Life Insurance Company (TLIC). FTCC was incorporated on
March 9, 2006 and initially capitalized with $1,000. Additional capital contributions of
$500,000 and $1,500,000 were added during 2006 and 2007, respectively. FTCC was formed for the
purpose of being a premium finance company and initially operate in the state of Oklahoma.
FTCC commenced its financing of insurance premiums in January 2007. TLIC was incorporated on
June 22, 2006 and was initially capitalized with $2,000,000 on September 28, 2006. TLIC was
formed to be a life insurance company and initially operate in the state of Oklahoma. TLIC
commenced the sale of life insurance products in March 2007.Basis of PresentationThe accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-QSB. Accordingly, they do
not include all of the information and footnotes required by accounting principles generally
accepted in the United States of America (GAAP) for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the results for the interim periods have been included.Certain financial information which is normally included in financial statements prepared in
accordance with GAAP, but which is not required for interim reporting purposes, has been
condensed or omitted. The accompanying condensed consolidated financial statements should be
read in conjunction with the financial statements and notes thereto included in the Companys
report on Form 10-SB and amendments thereto for the fiscal year ended December 31, 2006.
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##### Table of Contents



1.
    
    Organization and Accounting Policies(continued)The results of operations for the nine months and three months ended September 30, 2007 are not
necessarily indicative of the results to be expected for the year ended December 31, 2007 or
for any other interim period or for any other future year.Principles of ConsolidationThe accompanying condensed consolidated financial statements include the accounts and
operations of the Company, FTCC from its date of organization on March 9, 2006 and TLIC from
its date of organization on June 22, 2006. All intercompany accounts and transactions are
eliminated in consolidation.Development Stage ActivitiesThe Company was incorporated in Oklahoma on April 19, 2004 for the primary purpose of
organizing a life insurance subsidiary. The Company was in the development stage until the
public stock offering ended February 23, 2007.ReclassificationsCertain reclassifications have been made in the prior year financial statements to conform to
current year classifications. These reclassifications had no effect on previously reported net
income or shareholders equity.Use of EstimatesThe preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on managements knowledge of current
events and actions it may undertake in the future, they may ultimately differ from actual
results.Deferred Acquisition CostsCommissions and other acquisition costs which vary with and are primarily related to the
production of new business are deferred and amortized over the life of the related policies.
Refer to Revenues and Expenses discussed later regarding amortization methods. 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.
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1.
    
    Organization and Accounting Policies(continued)Benefit Reserves and Policyholder DepositsReserves on traditional life insurance products are calculated using the net level premium
method based upon estimated future investment yields, mortality, withdrawals and other
assumptions. The assumptions used for prior year issues are locked in. Current year issues are
reserved using updated assumptions determined by reviewing the Companys experience and include
a provision for possible unfavorable deviation. The mortality assumptions for regular ordinary
business are based on the 2001 Valuation Basic Tables, Select and Ultimate.ReinsuranceThe Company cedes reinsurance under various agreements allowing management to control exposure
to potential losses arising from large risks and providing additional capacity for growth.
Amounts recoverable from reinsurers are estimated in a manner consistent with the related
liabilities associated with the reinsured policies. These amounts are reported in accordance
with Statement of Financial Accounting Standards (SFAS) No. 113, Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts.Policy ClaimsPolicy claims are based on reported claims plus estimated incurred but not reported claims
developed from trends of historical market data applied to current exposure.Loans from Premium FinancingLoans from premium financing are carried net of unearned interest and any estimated loan
losses.Federal Income TaxesThe Company uses the liability method of accounting for income taxes. Deferred income taxes
are provided for cumulative temporary differences between balances of assets and liabilities
determined under GAAP and balances determined for tax reporting purposes.
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##### Table of Contents



1.
    
    Organization and Accounting Policies(continued)Revenues and ExpensesRevenues on traditional life insurance products consist of direct premiums reported as earned
when due. 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 since they are ordinary whole life insurance products, which
generally remain in force for the lifetime of the insured.Net Loss per Common ShareNet loss per common share is calculated using the weighted average number of common shares
outstanding during the year. Shares sold during the public stock offering were treated as
outstanding and used in the computation of earnings per share, although certificates for the
 shares were not issued until after the offering was complete in February 2007. There were no
contingencies after October 2005 that prevented the shares from being issued. All shares sold
during the periods are considered to be outstanding for one half of the month in which they
were sold. The weighted average outstanding common shares for the three months ended September
30, 2007 and 2006 were 5,805,000 and 4,786,331, respectively. The weighted average outstanding
common shares for the nine months ended September 30, 2007 and 2006 were 5,777,435 and
4,284,034, respectively.2.
    
    Segment DataSFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, requires a
management approach (how management internally evaluates the operating performance of its
business units) in the presentation of business segments. The segment data that follows has
been prepared in accordance with SFAS No. 131.The Company operates in three segments as shown in the following table. Given the limited
nature of each subsidiarys operations, the Company has a life insurance segment, consisting of
the operations of TLIC, and a premium financing segment, consisting of the operations of FTCC.
Results for the parent company, after elimination of intercompany amounts, are allocated to the
Corporate segment.
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2. Segment Data (continued)
 Nine months ended
    
    
    Three months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues:Life and annuity insurance operations
    
    $
    654,043
    
    
    $
    689
    
    
    $
    276,034
    
    
    $
    689Premium finance operations
    
    
    124,172
    
    
    
    
    
    
    
    64,719
    
    
    
    Corporate operations
    
    
    306,378
    
    
    
    188,501
    
    
    
    96,409
    
    
    
    90,851Total
    
    $
    1,084,593
    
    
    $
    189,190
    
    
    $
    437,162
    
    
    $
    91,540Income (loss) before income taxes:Life and annuity insurance operations
    
    $
    (32,129
    )
    
    $
    689
    
    
    $
    (13,571
    )
    
    $
    689Premium finance operations
    
    
    29,221
    
    
    
    (7,201
    )
    
    
    22,798
    
    
    
    (7,201
    )Corporate operations
    
    
    (385,941
    )
    
    
    (375,744
    )
    
    
    (84,282
    )
    
    
    (91,592
    )Total
    
    $
    (388,849
    )
    
    $
    (382,256
    )
    
    $
    (75,055
    )
    
    $
    (98,104
    )
 3.
    
    Federal Income TaxesThe provision (benefit) for federal income taxes is based on the estimated effective annual tax
rate. Deferred taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes.A valuation allowance has been established due to the uncertainty of loss carryforwards and
unrealized investment losses.The Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109(FIN 48), in June
2006. FIN 48 clarifies the accounting for uncertainty in income taxes by defining criteria that
a tax position on an individual matter must meet before that position is recognized in the
financial statements. Additionally, FIN 48 provides guidance on measurement, derecognition,
classification, interest and penalties, interim period accounting, disclosures and transition.
The Company adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not
have a material impact on our financial condition or results of operations.
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3.
    
    Federal Income Taxes(continued)The Company has no known uncertain tax benefits within its provision for income taxes. In
addition, the Company does not believe it would be subject to any penalties or interest
relative to any open tax years and, therefore, have not accrued any such amounts. The Company
files U.S. federal income tax returns and income tax returns in various state jurisdictions.
The 2004, 2005 and 2006 U.S. federal tax years are subject to income tax examination by tax
authorities. The Company classifies any interest and penalties (if applicable) as income tax
expense in the financial statements.4.
    
    Comprehensive LossThe components of comprehensive loss, net of related federal income taxes, are as follows:
 Nine Months Ended
    
    
    Three Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (388,849
    )
    
    $
    (382,256
    )
    
    $
    (75,055
    )
    
    $
    (98,104
    )Net unrealized gains (losses) on
available-for-sale securities,
net of federal income taxes
    
    
    576
    
    
    
    
    
    
    
    (596
    )
    
    
    Comprehensive loss
    
    $
    (388,273
    )
    
    $
    (382,256
    )
    
    $
    (75,651
    )
    
    $
    (98,104
    )
 5.
    
    ReinsuranceTLIC retains up to $55,000 on each insured and cedes any excess risk beyond the amount retained
among a combination of two reinsurance companies. TLIC remains contingently liable on all
ceded insurance should any reinsurer be unable to meet their obligations.6.
    
    Loans from Premium FinancingThe Company finances amounts up to 75% of the premium on casualty insurance policies after a
25% or greater down payment is made by the policy owner. The premiums financed are
collateralized by the amount of the unearned premium of the insurance policy. Policies that
become delinquent are submitted for cancellation and recovery of the unearned premium up to the
amount of the loan balance 25 days after a payment becomes delinquent. Factors considered in
determining loan losses are (1) the amount of loans with past due payments, (2) the value of
the collateral associated with each delinquent loan and (3) the probability of receiving the
unearned premium from the insurance company or insurance agent. Loans from premium financing
are carried net of unearned interest and any estimated loan losses.Unearned interest was
$43,048 at September 30, 2007 and none at December 31, 2006. There were no allowances for loan
losses at September 30, 2007 and December 31, 2006.
  11




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Item 2. Managements Discussion and Analysis or Plan of Operation
 Executive Overview
     Critical Accounting Policies and Estimates
   12




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Deferred Acquisition Costs
 Policy Liabilities
 Loans from Premium Financing
 Income Taxes
  13




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Business Segments
 Disclosures about Segments of an
Enterprise and Related Information"
 
    
    Life and Annuity Insurance Operationssegment includes the initial product offering of TLIC.
    
    Premium Finance Operationssegment includes the financing activities marketed by FTCC.
    
    Corporate Operationssegment consists of the corporate accounts of FTFC.
 Operating Results
  Life and Annuity Insurance Operations
  Premium Finance Operations
 Corporate Operations
  14




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Investments, Liquidity and Capital Resources
 Investments
 Liquidity and Capital Resources
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Off-Balance Sheet Arrangements
 Forward Looking Information
  
 Item 3. Controls and Procedures
    16




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 10.5
    
    Employment contract of Gregg Zahn, President31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer32.1
    
    Section 1350 Certification of Principal Executive Officer32.2
    
    Section 1350 Certification of Principal Financial Officer
 
   FIRST TRINITY FINANCIAL CORPORATION
an Oklahoma corporationDated: November 12, 2007
    By:
    /s/ Gregg ZahnGregg Zahn, President and Chief Executive OfficerDated: November 12, 2007
    By:
    /s/ William LayWilliam Lay, Secretary, Treasurer andChief Financial Officer  17