The following tables set forth unaudited quarterly statements of operations data for 2008 and 2007. The information for each of these quarters has been prepared on substantially the same basis as the audited financial statements included elsewhere in this annual report, and, in our opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for these periods. Historical results are not necessarily indicative of the results to be expected in the future, and results of interim periods are not necessarily indicative of results for the entire year.
Selling and marketing expenses consist primarily of direct advertising costs. The costs of communicating the advertising are expensed in the period the advertising is communicated.
The Company's assets and liabilities recorded at fair value are categorized based upon a fair value hierarchy in accordance with Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS 157"). The fair value hierarchy ranks the quality and reliability of the information used to determine fair value. The fair value of certain of the Company's financial instruments, including Cash and cash equivalents, Certificates of deposit, Accounts receivable, and Accounts payable, approximates the carrying value due to the relatively short maturity of such instruments. We classify our fixed maturity investments as available-for-sale and, accordingly, such investments are carried at fair value. The cost of fixed maturity investments is adjusted for amortization of premiums and discounts and for declines in value that are other than temporary. Temporary changes in the fair values of investments are reflected directly in stockholders' equity as accumulated other comprehensive income or loss net of income taxes with no effect on net income or loss. Realized gains or losses are calculated using the specific identification method
While goodwill is not amortized, it is subject to periodic reviews for impairment (at least annually, or more frequently if impairment indicators arise). We review goodwill for impairment periodically and whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. Such impairment reviews are performed at the entity level with respect to goodwill, as we have one reporting unit. Under those circumstances, if the fair value were less than the carrying amount of the entity, further analysis would be required to determine whether or not a loss would need to be charged against current period earnings. No indicators of impairment were noticed in our December 31, 2008 and December 31, 2007 impairment reviews, as the calculated fair value of the reporting unit exceeded the carrying value by approximately 8% at each review date. The determination of fair value and the impairment are based on a combination of a market valuation based on a comparison with similar public companies (guideline company method) and a discounted cash flow analysis, which includes making various judgmental assumptions, including assumptions about future cash flows, growth rates and discount rates. The use of different estimates or assumptions could produce different results. If the Company is unable to achieve the anticipated projected operating
results utilized in the discounted cash flow analysis, there may be future goodwill impairment charges. During the fourth quarter of 2005, the Company experienced declining revenues from life insurance sales and a drop in the market price of its common stock. Our annual impairment review was conducted as of December 31, 2005, and it was determined that an impairment existed. As a result of this determination, the Company recorded an impairment charge against earnings in the fourth quarter of 2005 amounting to $3.75 million.
Revenues decreased $2.3 million or 13.1%, to $15.7 million in 2008 from $18.0 million in 2007. The components of revenue are as follows:
General and Administrative. General and administrative expenses increased 4%, or $127,000, in 2008 to a total of $3.4 million. Most of the increase resulted from higher fees for background and credit checks for new agents.
We had no income tax benefit for 2008 and 2007 due to valuation allowances provided against net deferred tax assets as a result of the uncertainty of the future utilization of our net operating loss carryforward assets.
Our sources of funds will consist primarily of commissions generated from the sale of life insurance products, fee revenue from the sale of insurance leads, investment income, and maturity proceeds from our fixed maturity portfolio. The principal uses of funds are selling and marketing expenses, operations, general and administrative expenses, and acquisitions of furniture, equipment and software.
receivable decreased due to an increase in the reserve for first year lapses, which was the result of higher lapses during 2008 than we experienced during 2007.
Cash used for financing activities in 2008 and 2007 totaled $1.8 million and $70,000, respectively, and consisted of the repurchase of shares of our common stock.
In September 2006, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. In February of 2008, the FASB issued FASB Staff position 157-2 which delays the effective date of SFAS 157 for non-financial assets and liabilities which are not measured at fair value on a recurring basis (at least annually) until fiscal years beginning after November 15, 2008. In October 2008, FASB issued Staff Position No. SFAS 157-3, which clarifies the application of FASB SFAS No. 157 Fair Value Measurements. Staff Position No. SFAS. 157-3 provides guidance in determining the fair value of a financial asset when the market for that financial asset is not active. The adoption of SFAS 157 did not have a material effect on the financial statements.
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations." SFAS 141(R) establishes principles and requirements for how the acquirer (a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This Statement will supersede SFAS 141, "Business Combinations", and applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The potential impact, if any, of adopting SFAS 141 (R) on the Company's consolidated results of operations and financial condition will depend on future acquisition activity.