Beginning in fiscal 2008 and completed during the first quarter of fiscal 2009, the Company obtained two rounds of bridge financing totaling an aggregate of $3,500,000. The purpose of the financing was to pay expenses of operations and to pay fees and expenses incurred or expected to be incurred in connection with a larger permanent financing and, in addition, to increase the capital surplus of FSC to make possible the reactivation of FSC’s surety license in the state of Ohio. The terms of the bridge-financing arrangement provided for payment in full upon consummation by
The Company incurred loss adjustment expenses of $26,590 related to costs of engaging experts, attorney fees, and consultants for potential claims. These costs were charged against established case reserves or bulk reserves.
Expansion of FSC’s business to other states is a key component to fully implementing the Company’s business plan. In fiscal 2009, the Company was able to increase the capital of FSC and reactivate FSC’s insurance license in Ohio and obtain authority to issue surety bonds in that state. However, management has found that entry into other states (as a surety) has been difficult without the benefit of more substantial capital and reserves due to FSC’s specialization in coal reclamation bonds, the cyclical nature of that industry and the financial condition of the Company. Management believes that if FSC’s capital and surplus reserves were significantly more substantial and the financial condition of the Company was stabilized, entry into other states would be less challenging. Accordingly, management continues to pursue avenues that can provide additional capital to increase the capacity of its insurance subsidiary and to fund continuing operations as the business is being fully developed.
The Company recognized other income of approximately $287,000 from the removal of dormant accounts payable and commissions no longer payable on premium receivables that were written off as uncollectible, and approximately $81,000 in interest income on notes receivable issued during 2016.
Revenue from the surety insurance segment, consisting of FSC and TSA, decreased 42%, with $829,456 in fiscal 2016 as compared with $1,434,730 for the prior year. Revenues attributable to the insurance segment are as follows:
of Series A stock released all of their outstanding bonds held with FSC. Therefore, these shares of Series A Preferred Shareholders are listed in the liability section of the consolidated balance sheet and the dividends after February 29, 2012 associated with these shares are a deduction from net income in the amounts of $65,374 and $62,649, for the years ended May 31, 2016 and 2015, and not included in the table above. Series C equity stock is not mandatorily redeemable and does not accrete.
Management believes that the Company’s successful elimination of the $3.5 million Bridge debt has been a substantial positive that will permit its insurance subsidiary to raise significant capital and more fully execute its business plan within the next 12 months. Additional capital will permit FSC to apply for licensing in additional states targeted for our coal reclamation surety program, plus file for approval with the U.S. Treasury to provide bonds for projects on federal lands.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40) (ASU 2014-15). ASU 2014-15 is intended to define management's responsibility to evaluate whether there is substantial
On October 2016, the FASB issued ASU 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control”, that affects reporting
The Company held the following investments, by 	security type, that have been 	classified as available-for-sale and carried at fair value at May 31, 2015:
At May 31, 2016 and May 31, 2015, the reserve for losses and loss expenses consisted of:
During the years ended May 31, 2016 and May 31, 2015, a company owned by a board member provided consulting services. This company provided services totaling $62,100 and $62,100 in 2016 and 2015. Amounts owed to this company at year end are treated as related party payables in the amounts $124,723 and $169,375 at May 31, 2016 and 2015 respectively.
Effective April 1, 2009, FSC entered into a reinsurance agreement with various syndicates at Lloyd’s of London (“Reinsurer”) for its coal reclamation surety bonding programs. The agreement has been renewed annually with the Reinsurer, with the most recent renewal effective April 1, 2017. The reinsurance agreement is an excess of loss contract which protects the Company against losses up to certain limits over stipulated amounts and can be terminated by either party by written notice of at least 90 days prior to any July 1. The contract calls for a premium rate of 35% subject to a minimum premium of $490,000. Deposits to the reinsurers are made quarterly in arrears in equal amounts of $140,000. At May 31, 2016 and May 31, 2015, the Company had prepaid reinsurance premiums of $232,647 and $207,413 and ceded reinsurance deposited of $5,689 at May 31, 2015.