The statements contained in the following "Management's Discussion and Analysis of Financial Condition and results of Operations," statements contained in future filings with the Securities and Exchange Commission and publicly disseminated press releases, and statements which may be made from time to time in the future by management of the Company in presentations to shareholders, prospective investors, and others interested in the business and financial affairs of the Company, which are not historical facts, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. Any projections of financial performances or statements concerning expectations as to future developments should not be construed in any manner as a guarantee that such results or developments will, in fact, occur. There can be no assurance that any forward-looking statement will be realized or that actual results will not be significantly different from that set forth in such forward-looking statement. In addition to the risks and uncertainties of
ordinary business operations, the forward-looking statements of the Company referred to above are also subject to risks and uncertainties.
For the year ended December 31, 1996, expenses totaled $1,682,338 representing a $771,242 increase over the same period of 1995. This increase was primarily due to the growth in FAIC's insurance operations. There were no life insurance related expenses during 1994 since FAIC commenced operations in November of 1995. Life policy reserve expense totaled $354,648 in 1996 as compared to $25,272 in 1995. Policy reserves are established with the sale of life insurance. Policy reserve expense for 1996 represents sales for the entire year while 1995 amounts represent two months of sales. Expenses related to the acquisition of life insurance are deferred and amortized over the premium paying period of the related policy. These expenses, which include commissions and administrative costs, totaled $859,561 and $64,164 during 1996 and 1995, respectively, were reclassified as deferred policy acquisition costs. Amortization of these costs totaled $161,163 during 1996 and $12,952 during 1995. Death claims incurred during 1996 totaled $68,574 which are net of $40,000 of death benefits reinsured. Expenses directly related to FAIC's agency totaled $143,984 for the year ended December 31, 1996. These expenses include agent's health insurance, agency meetings, recruiting and other expenses directly related to the sale of insurance and annuities. Direct agency expenses totaled$31,085 during 1995.
Salaries and benefit expenses totaled $454,755 in 1996 and $545,327 in 1995. This decrease of $90,572 is the primary result of a reduction of bonuses to the executive officers and the allocation of salaries when the financial statements are consolidated. Professional fees totaled $119,472 for 1996 and $68,490 for 1995. Audit fees of $19,250 related to the 1995 audit were expensed during 1996. During 1996, the Company issued the common shares sold during the public stock offering. Fees related to the issuance of these shares and the ongoing maintenance of accounts totaled $15,391.
Income tax expense, which is calculated based on the earnings of FAIC, totaled $111,653 during 1996 and $35,897 during 1995. Current tax expense is based on taxable income as calculated based on federal Internal Revenue Service code requirements. These requirements include adjustments for such items as reserves and deferred policy acquisition costs. Deferred taxes are based on temporary differences which are the result of different accounting practices for financial reporting and tax reporting.
FAIC's insurance operations generally receive adequate cash flow from premium collections and investment income to meet their obligations. Insurance policy liabilities are primarily long-term and generally are paid from future cash flows. Most of the Company's invested assets are in bonds which are readily marketable. Although there is no present need or intent to dispose of such investments, the Company could liquidate portions of their investments if such a need arose.