The Company currently leases approximately 43,300 square feet of office space in Petaluma, California. The current lease expires in October, 2006, and includes a commitment by the Company to lease an additional 10,460 square feet beginning August 1, 1998. Management believes that existing office space, combined with the additional space to be leased in 1998, is adequate for the Company's current operations.
Administrative fees increased approximately $468,000, or 14.9%, during 1997 compared to 1996, and increased approximately $104,000, or 3.4%, during 1996 compared to 1995. These increases are due primarily to increases in the number of policies sold and administered during the respective periods and to a shift in policies administered to those which generate higher administrative fees.
During 1997, the Company marketed and administered insurance products for only two Carriers, American National and IL Annuity. During 1997, approximately 36.2% and 57.0% of the Company's total revenue resulted from agreements with American National and IL Annuity, respectively, compared to approximately 87.5% and 5.9%, respectively, during 1996. This shift in income from American National to IL Annuity is attributable primarily to favorable market acceptance of IL Annuity's products.
Occupancy expense increased approximately $244,000, or 37.9%, during 1997 from 1996, and increased approximately $88,000, or 15.8%, during 1996 from 1995. These increases are due primarily to increases in facilities rent expense resulting from the Company's leasing additional office space in November, 1996, and to overall increases in telephone and other utilities expenses which correspond with increases in sales volume and employment, as discussed above.
The Company's ability to mobilize its assets remained strong at December 31, 1997, with cash and investments representing 66.8% of the Company's total assets. The Company maintains a significant portion of its assets in cash and investments primarily to support growth in operations, to fund continued product development and potential strategic acquisitions, and as a reserve to cover possible redemptions of certain of the Company's common stock, which is redeemable at the option of shareholders under various agreements with the Company. During 1997, redemption requests received by the Company were not material in amount, either individually or in the aggregate, and the Company believes that its liquid assets are sufficient to meet anticipated requests for redemption. In the unlikely event that all redeemable shares were presented for redemption, the Company believes that such demands could be met by reserves on hand. At December 31, 1997, the redemption value of redeemable common stock was approximately $5.9 million (see "
December 31, 1997 December 31, 1996 ----------------- ----------------- ASSETS Cash and cash equivalents $ 5,194,332 $ 2,202,596 Investments 7,692,279 7,947,207 Accounts receivable 1,239,306 511,710 Prepaid expenses 572,932 361,950 Deferred income taxes-current 488,437 -- Marketing supplies inventory 228,853 251,979 Income taxes receivable -- 179,746 -------------- -------------- Total Current Assets 15,416,139 11,455,188 -------------- --------------
Loan payable 132,285 132,285 Deferred incentive compensation 149,609 184,456 -------------- -------------- Total Non Current Liabilities 281,894 316,741 -------------- -------------- TOTAL LIABILITIES 3,621,380 2,519,866 -------------- --------------
In June, 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires publicly-held companies to report financial and other information about key revenue-producing segments of the entity for which such information is available and is utilized by the chief operation decision maker. Specific information to be reported for individual segments includes profit or loss, certain revenue and expense items and total assets. A reconciliation of segment financial information to amounts reported in the financial statements would be provided. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. The Company does not believe that SFAS No. 131 will have a material impact on the Company's financial statements.
1997 1996 ---- ---- Annual sales convention $ 1,226,169 $ 825,556 Accrued compensation 976,428 843,301 Producer seminar expenses 39,498 151,531 Other 363,759 211,999 ------------- ------------- Totals $ 2,605,854 $ 2,032,387 ============= =============
The Company has a loan payable, bearing interest at 9% annually, representing amounts borrowed in a non-cash transaction to pay premiums related to a split-dollar life insurance policy. The outstanding balance of the loan was $132,285 at December 31, 1997 and 1996.
The Company sponsors a qualified defined contribution 401(k) plan (the "401(k) Plan"), which is available to all employees. The 401(k) Plan allows employees to defer, on a pretax basis, a portion of their compensation as contributions to the plan. Employees may elect to contribute up to 15% of their annual compensation (not to exceed $9,500 annually for 1997 and 1996 and $9,240 for 1995) to the 401(k) Plan. The Company matches 50% of each employee's contributions, up to a maximum of 6% of annual compensation. The Company's matching contributions charged to operating expenses were $181,443, $134,673, and $83,849 for the years ended December 31, 1997, 1996 and 1995, respectively.
The Company currently leases approximately 43,300 square feet of office space at an annual rent of approximately $292,000 plus required maintenance, landscaping and related expenses. The current lease expires in October, 2006, and includes a commitment by the Company to lease an additional 10,460 square feet beginning August 1, 1998, which will raise the annual rent by approximately $72,000 per year.
1998 $ 481,191 1999 537,536 2000 525,200 2001 432,797 2002 442,030 Thereafter 1,783,529 ----------------- Total minimum lease payments $ 4,202,283 =================
At December 31, 1994, the Company did not have sufficient current assets, as required under California corporate law, to purchase all of the Series A Redeemable Common Stock and Series B Redeemable Common Stock (hereafter collectively referred to as the "Redeemable Common Stock"). However, during 1995, current assets surpassed current liabilities by an amount sufficient to allow the Company to meet its obligations under the 701 Plan, the Subscription Agreement, and the Merger Agreement.
Changes to Redeemable Common Stock during the years ended December 31, 1997, 1996 and 1995 were as follows:
At December 31, 1996, the Company had outstanding warrants which granted the holder the right to purchase 140,950 shares of its common stock at a price of $2.25 per share. The warrants became exercisable on April 1, 1995, and expired on March 31, 1997.
During 1997, the Company's Board of Directors approved the Regan Holding Corp. Producer Stock Option Plan (the "Producer Option Plan"), which provides for the granting of stock options to LMG Producers and LFS registered representatives. 2,700,000 shares of the Company's Series A Common Stock were reserved for granting under the Producer Stock Option Plan. On January 1, 1998, (the "Producer Grant Date") 795,400 options were granted pursuant to the Producer Stock Option Plan (the "Producer Options). The Producer Options vest evenly over five years following the Producer Grant Date. Once vested, the Producer Options become exercisable at the estimated fair market value of $.73 per share. Any unexercised Producer Options expire six years after the Producer Grant Date. The impact of the Producer Options on the Company's 1998 financial statements will be accounted for in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," and is not expected to be material.
The provisions for federal and state income taxes consist of amounts currently payable and amounts deferred which, for the periods indicated, are shown below:
The Company's deferred tax assets at December 31 consist of the following:
As of December 31, 1997, the Company also has, for federal and state income tax purposes, $210,775 and $441,545, respectively, in alternative minimum tax credits which can be used to reduce income taxes in subsequent years to the extent of tentative minimum tax. The credits have no expiration date.
Pursuant to a salary continuation agreement related to the Company's former Chief Executive Officer, John Regan, payments totaling $87,688 and $280,000 were made to Ms. Regan during the years ended December 31, 1996 and 1995, respectively, as an obligation of the Company to his estate. No such payments were made during 1997.
At December 31, 1997, the Company was contracted with over 12,000 independent insurance Producers to sell insurance products throughout the country in a majority of the fifty states. Production in no one state accounted for over 20% of insurance premiums to the Carriers nor of the corresponding revenue of the Company during 1997.
Prior to December, 1995, American National was the only insurance company with which the Company was contracted to market insurance products. This arrangement generated approximately 36.2%, 87.5%, and 97.7% of total revenues to the Company during 1997, 1996 and 1995, respectively. In December 1995, the Company contracted to provide marketing and administrative services for IL Annuity. This arrangement generated approximately 57.0% and 5.9% of the Company's revenues during 1997 and 1996, respectively. However, neither the Marketing Agreements nor the Processing Agreements prevent the Company from entering into similar arrangements with other insurance companies.