UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

~~[ X]~~

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended~~June~~March 301, ~~2019.~~2020.

~~[ ]~~☐ 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: ~~000-55627~~000-55627

US ALLIANCE CORPORATION
(Exact name of registrant as specified in its charter)

KANSAS		26-4824142
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4123 SW Gage Center Drive, Suite 240, Topeka, Kansas		66604
(Address of principal executive offices)		(Zip Code)

~~(785) 228-0200~~(785) 228-0200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~[X]~~☒ Yes ~~[ ]~~☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ~~[X]~~☒ Yes ~~[ ]~~☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large

accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☐

Smaller

reporting company

☑

Emerging

growth company

☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ~~[ ]~~☐

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~[ ]Yes [ X ]~~☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock, $0.10 par value

~~7,712,494~~7,740,743 shares outstanding

as of ~~August~~May 5, ~~2019~~2020

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

Table of Contents

US ALLIANCE CORPORATION

FORM 10-Q

TABLE OF CONTENTS

Part I - Financial Information

Item	Item Description	Page
Item 1	Financial Statements	3

	Consolidated Balance Sheets	3

	Consolidated Statements of Comprehensive Income (Loss)	4

	Consolidated Statements of Changes in Shareholders' Equity	5

	Consolidated Statements of Cash Flows	6

	Notes to Consolidated Financial Statements	7

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3	Quantitative and Qualitative Disclosures About Market Risk	2826

Item 4	Controls and Procedures	2826

Part II - Other Information

Item	Item Description	Page
Item 1	Legal Proceedings	2827

Item 1A	Risk Factors	2927

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2927

Item 3	Defaults Upon Senior Securities	2927

Item 4	Mine Safety Disclosures	2927

Item 5	Other Information	2927

Item 6	Exhibits	2927

	Signatures	3028

Table of Contents

ITEM 1. 1. FINANCIAL STATEMENTS

US Alliance Corporation

Consolidated Balance Sheets

	March 31, 2020			December 31, 2019
	(unaudited)
Assets
Investments:
Available for sale fixed maturity securities (amortized cost: $32,248,318 and $30,823,397 as of March 31, 2020 and December 31, 2019, respectively)	$	32,872,792		$	33,152,892
Available for sale equity securities (cost: $8,680,693 and $9,982,950 as of March 31, 2020 and December 31, 2019, respectively)		7,687,435			10,141,503
Policy loans		141,650			118,930
Total investments		40,701,877			43,413,325

Cash and cash equivalents		7,227,537			6,678,805
Investment income due and accrued		354,528			321,362
Reinsurance related assets		13,782,795			188,382
Deferred acquisition costs, net		3,873,837			2,652,674
Value of business acquired, net		554,918			559,994
Property, equipment and software, net		41,282			43,841
Goodwill		277,542			277,542
Deferred tax asset, net of valuation allowance		431,158			431,158
Other assets		416,404			372,166
Total assets	$	67,661,878		$	54,939,249


Liabilities and Shareholders' Equity
Liabilities:
Policy liabilities
Deposit-type contracts	$	35,409,722		$	19,396,614
Policyholder benefit reserves		18,316,000			17,326,524
Dividend accumulation		121,016			123,038
Advance premiums		90,562			78,709
Total policy liabilities		53,937,300			36,924,885

Accounts payable and accrued expenses		163,397			122,981
Federal Home Loan Bank advance		1,000,000			1,000,000
Other liabilities		98,079			15,186
Total liabilities		55,198,776			38,063,052

Shareholders' Equity:
Common stock, $0.10 par value. Authorized 20,000,000 shares; issued and outstanding 7,740,700 and 7,734,004 shares as of March 31, 2020 and December 31, 2019, respectively		774,071			773,401
Additional paid-in capital		23,204,894			23,210,257
Accumulated deficit		(12,140,327	)		(9,436,956	)
Accumulated other comprehensive income		624,464			2,329,495
Total shareholders' equity		12,463,102			16,876,197

Total liabilities and shareholders' equity	$	67,661,878		$	54,939,249

See Notes to Consolidated Financial Statements.

June 30, 2019

December 31, 2018

(unaudited)

Assets
Investments:

Available for sale fixed maturity securities (amortized cost: $28,536,444 and $27,957,697 as of June 30, 2019 and December 31, 2018, respectively)
$ 30,038,199 $ 26,882,239
Available for sale equity securities (cost: $11,987,669 and $12,096,488 as of June 30, 2019 and December 31, 2018, respectively)
11,735,719 10,987,539
Policy loans
57,083 56,539
Total investments
41,831,001 37,926,317

Cash and cash equivalents
3,943,050 2,077,646
Investment income due and accrued
285,653 286,890
Reinsurance related assets
181,359 161,846
Deferred acquisition costs, net
2,752,733 2,757,404
Value of business acquired, net
570,145 580,297
Property, equipment and software, net
48,959 54,078
Goodwill
277,542 277,542
Other assets
417,799 406,969
Total assets
$ 50,308,241 $ 44,528,989

Liabilities and Shareholders' Equity

Liabilities:

Policy liabilities

Deposit-type contracts
$ 17,993,557 $ 16,626,218
Policyholder benefit reserves
16,171,857 14,697,519
Dividend accumulation
167,876 176,056
Advance premiums
73,326 56,736
Total policy liabilities
34,406,616 31,556,529

Accounts payable and accrued expenses
167,948 311,082
Other liabilities
14,179 28,712
Total liabilities
34,588,743 31,896,323

Shareholders' Equity:

Common stock, $0.10 par value. Authorized 20,000,000 shares; issued and outstanding 7,707,090 and 7,650,551 shares as of June 30, 2019 and December 31, 2018, respectively
770,710 765,056
Additional paid-in capital
23,141,692 22,989,443
Accumulated deficit
(9,695,078 ) (8,937,404 )
Accumulated other comprehensive income (loss)
1,502,174 (2,184,429 )
Total shareholders' equity
15,719,498 12,632,666

Total liabilities and shareholders' equity
$ 50,308,241 $ 44,528,989

~~See Notes to Consolidated Financial Statements.~~

Table of Contents

US Alliance Corporation

Consolidated Statements of Comprehensive Income (Loss)

	Six Months Ended June 30,						Three Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(unaudited)						(unaudited)						(Unaudited)
Income:
Premium income	$	4,920,690		$	4,874,480		$	2,527,714		$	2,442,384		$	2,715,761		$	2,392,976
Net investment income		861,038			700,770			451,106			377,624			514,708			397,646
Net realized gain (loss) on sale of securities		(14,528	)		(327	)		(14,528	)		(327	)
Unrealized gain on equity securites		845,817			-			118,614			-
Net investment gains (losses)														(1,370,761	)		727,203
Other income		25,058			15,994			12,259			6,748			13,656			12,799
Total income		6,638,075			5,590,917			3,095,165			2,826,429			1,873,364			3,530,624

Expenses:
Death claims		724,316			404,212			328,649			168,838			481,712			395,667
Policyholder benefits		2,305,295			2,315,779			1,168,467			1,188,097			1,249,083			1,136,828
Increase in policyholder reserves		1,437,658			1,507,612			757,098			710,976			923,248			680,560
Commissions, net of deferrals		413,599			319,978			194,064			167,821			206,956			219,535
Amortization of deferred acquisition costs		180,727			210,614			117,825			120,259			575,210			62,902
Amortization of value of business acquired		10,152			10,152			5,076			5,076			5,076			5,076
Salaries & benefits		502,727			543,340			250,895			268,492			263,205			251,832
Other operating expenses		722,515			858,816			307,873			373,698			872,245			402,356
Total expense		6,296,989			6,170,503			3,129,947			3,003,257			4,576,735			3,154,756

Net lncome (loss)	$	341,086		$	(579,586	)	$	(34,782	)	$	(176,828	)

Net income (loss)													$	(2,703,371	)	$	375,868

Net income (loss) per common share, basic and diluted	$	0.04		$	(0.08	)	$	(0.00	)	$	(0.02	)	$	(0.35	)	$	0.05

Unrealized net holding gains (losses) arising during the period		2,573,315			(1,504,447	)		1,327,537			(515,501	)		(1,674,158	)		1,245,778
Cumulative effect, adoption of accounting guidance on equity securities		1,098,760			-			-			-
Reclassification adjustment for (gains) losses included in net loss		14,528			327			14,528			327
Reclassification adjustment for gains included in net loss														(30,873	)		-

Other comprehensive income (loss)		3,686,603			(1,504,120	)		1,342,065			(515,174	)		(1,705,031	)		1,245,778

Comprehensive income (loss)	$	4,027,689		$	(2,083,706	)	$	1,307,283		$	(692,002	)	$	(4,408,402	)	$	1,621,646

See Notes to Consolidated Financial Statements.

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US Alliance Corporation

Consolidated Statements of Changes in Shareholders' Equity

Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018 (unaudited)~~(Unaudited)

								Accumulated																	Accumulated
	Number of							Other										Number of							Other
	Shares of		Common		Additional			Comprehensive			Accumulated							Shares of		Common		Additional			Comprehensive			Accumulated
	Common Stock		Stock		Paid-in Capital			Income / (Loss)			Deficit			Total				Common Stock		Stock		Paid-in Capital			Income / (Loss)			Deficit			Total
Balance, December 31, 2017		7,310,939	$	731,095	$	21,280,437		$	405,438		$	(8,481,268	)	$	13,935,702
Balance, December 31, 2018																			7,650,551	$	765,056	$	22,989,443		$	(2,184,429	)	$	(8,937,404	)	$	12,632,666
Common stock issued, $7 per share																			42,857		4,286		295,713			-			-			299,999
Costs associated with common stock issued																			-		-		(143,109	)		-			-			(143,109	)
Cumulative effect, adoption of accounting guidance for equity securities																	Cumulative effect, adoption of accounting guidance for equity securities									1,098,760			(1,098,760	)		-
Other comprehensive income																			-		-		-			1,245,778			-			1,245,778
Net income																			-		-		-			-			375,868			375,868
Balance, March 31, 2019																			7,693,408	$	769,342	$	23,142,047		$	160,109		$	(9,660,296	)	$	14,411,202

Balance, December 31, 2019																			7,734,004	$	773,401	$	23,210,257		$	2,329,495		$	(9,436,956	)	$	16,876,197
Common stock issued, $7 per share		142,348		14,235		982,201			-			-			996,436				6,696		670		46,202			-			-			46,872
Costs associated with common stock issued		-		-		(277,431	)		-			-			(277,431	)			-		-		(51,565	)		-			-			(51,565	)
Other comprehensive loss		-		-		-			(1,504,120	)		-			(1,504,120	)			-		-		-			(1,705,031	)		-			(1,705,031	)
Net loss		-		-		-			-			(579,586	)		(579,586	)			-		-		-			-			(2,703,371	)		(2,703,371	)
Balance, June 30, 2018		7,453,287	$	745,330	$	21,985,207		$	(1,098,682	)	$	(9,060,854	)	$	12,571,001

Balance, December 31, 2018		7,650,551	$	765,056	$	22,989,443		$	(2,184,429	)	$	(8,937,404	)	$	12,632,666
Common stock issued, $7 per share		56,539		5,654		390,119			-			-			395,773
Costs associated with common stock issued		-		-		(237,870	)		-			-			(237,870	)
Cumulative effect, adoption of accounting guidance for equity sercurities		-		-		-			-			(1,098,760	)		(1,098,760	)
Other comprehensive income		-		-		-			3,686,603			-			3,686,603
Net income		-		-		-			-			341,086			341,086
Balance, June 30, 2019		7,707,090	$	770,710	$	23,141,692		$	1,502,174		$	(9,695,078	)	$	15,719,498
Balance, March 31, 2020																			7,740,700	$	774,071	$	23,204,894		$	624,464		$	(12,140,327	)	$	12,463,102

~~See Notes to Consolidated Financial Statements.~~

Accumulated

Number of

Other

Shares of

Common

Additional

Comprehensive

Accumulated

Common Stock

Stock

Paid-in Capital

Income / (Loss)

Deficit

Total

Balance, March 31, 2018
7,357,157 $ 735,717 $ 21,479,626 $ (583,508 ) $ (8,884,026 ) $ 12,747,809
Common stock issued, $7 per share
96,130 9,613 663,297 - - 672,910
Costs associated with common stock issued
- - (157,716 ) - - (157,716 )
Other comprehensive loss
- - - (515,174 ) - (515,174 )
Net loss
- - - - (176,828 ) (176,828 )
Balance, June 30, 2018
7,453,287 $ 745,330 $ 21,985,207 $ (1,098,682 ) $ (9,060,854 ) $ 12,571,001

Balance, March 31, 2019
7,693,408 $ 769,342 $ 23,142,047 $ 160,109 $ (9,660,296 ) $ 14,411,202
Common stock issued, $7 per share
13,682 1,368 94,406 - - 95,774
Costs associated with common stock issued
- - (94,761 ) - - (94,761 )
Other comprehensive income
- - - 1,342,065 - 1,342,065
Net loss
- - - - (34,782 ) (34,782 )
Balance, June 30, 2019
7,707,090 $ 770,710 $ 23,141,692 $ 1,502,174 $ (9,695,078 ) $ 15,719,498

See Notes to Consolidated Financial Statements.

Table of Contents

US Alliance Corporation

Consolidated Statements of Cash Flows

	Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2020			2019
	(unaudited)						(unaudited)
Cash Flows from Operating Activities:
Net income (loss)	$	341,086		$	(579,586	)	$	(2,703,371	)	$	375,868
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		5,118			17,610			2,559			2,559
Net realized losses on the sale of securities		14,528			327
Unrealized gain on equity securities		(845,817	)		-
Net realized (gains) losses on the sale of securities								218,953			-
Unrealized (gains) losses on equity securities								1,151,808			(727,203	)
Amortization of investment securities, net		17,055			27,965			20,201			11,881
Deferred acquisition costs capitalized		(176,056	)		(155,219	)		(1,796,373	)		(74,961	)
Deferred acquisition costs amortized		180,727			210,614			575,210			62,902
Value of business acquired amortized		10,152			10,152			5,076			5,076
Interest credited on deposit type contracts		328,583			260,441			194,549			160,494
(Increase) decrease in operating assets:
Investment income due and accrued		1,237			(28,758	)		(33,166	)		(24,508	)
Reinsurance related assets		(19,513	)		68,767			(13,594,413	)		60,531
Other assets		(10,830	)		34,070			(44,238	)		17,033
Increase (decrease) in operating liabilities:
Policyowner benefit reserves		1,474,338			1,523,496			989,476			631,551
Dividend Accumulation		(8,180	)		-			(2,022	)		(9,519	)
Advance premiums		16,590			20,920			11,853			(6,587	)
Other liabilities		(14,533	)		12,383			82,893			(3,279	)
Accounts payable and accrued expenses		(143,134	)		(2,355	)		40,416			12,463
Net cash provided by operating activities		1,171,351			1,420,827
Net cash provided by (used in) operating activities								(14,880,589	)		494,301

Cash Flows from Investing Activities:
Available-for-sale securities
Purchase of fixed income investments		(984,288	)		(1,758,337	)		(876,333	)		(615,289	)
Purchase of equity investments		(179,039	)		(768,944	)		(2,974,768	)		(173,630	)
Proceeds from fixed income sales and repayments		393,163			183,226			523,611			52,582
Proceeds from equity sales and repayments		268,101			-			2,965,665			-
Interest on policy loans		(723	)		(1,156	)		(2,477	)		(674	)
Decrease (increase) in policy loans		179			(13,801	)
Purchase of property, equipment and software		-			(5,334	)
Increase in policy loans								(20,243	)		(222	)
Net cash used in investing activities		(502,607	)		(2,364,346	)		(384,545	)		(737,233	)

Cash Flows from Financing Activities:
Receipts on deposit-type contracts		1,921,482			2,197,360			16,468,780			965,438
Withdrawals on deposit-type contracts		(882,725	)		(756,764	)		(650,221	)		(471,668	)
Proceeds from FHLB advance								-
Proceeds received from issuance of common stock, net of costs of issuance		157,903			719,005			(4,693	)		156,890
Net cash provided by financing activities		1,196,660			2,159,601			15,813,866			650,660

Net increase in cash and cash equivalents		1,865,404			1,216,082			548,732			407,728

Cash and Cash Equivalents:
Beginning		2,077,646			651,809			6,678,805			2,077,646
Ending	$	3,943,050		$	1,867,891		$	7,227,537		$	2,485,374

~~See Notes to Consolidated Financial Statements.~~
See Notes to Consolidated Financial Statements (unaudited).

Table of Contents

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Note 1. Description of Business and Significant Accounting Policies

Description of business: US Alliance Corporation ("USAC") was formed as a Kansas corporation on April 24, 2009 to raise capital to form a new Kansas-based life insurance company. Our offices are located at 4123 SW Gage Center Drive, Suite 240, Topeka, Kansas 66604. Our telephone number is 785-228-0200 and our website address is www.usalliancecorporation.com.

USAC has five wholly-owned operating subsidiaries. US Alliance Life and Security Company ("USALSC") was formed June 9, 2011, to serve as our life insurance company. US Alliance Marketing Corporation ("USAMC") was formed April 23, 2012, to serve as a marketing resource. US Alliance Investment Corporation ("USAIC") was formed April 23, 2012 to serve as investment manager for USAC. Dakota Capital Life Insurance Company (“DCLIC”) was acquired on August 1, 2017 when USAC merged with Northern Plains Capital Corporation (“NPCC”). US Alliance Life and Security Company - Montana ("USALSC-Montana") was acquired December 14, 2018. Both DCLIC and USALSC-Montana are wholly-owned subsidiaries of USALSC.

The Company terminated its initial public offering on February 24, 2013. During the balance of 2013, the Company achieved approval of an array of life insurance and annuity products, began development of various distribution channels and commenced insurance operations and product sales. The Company sold its first insurance product on May 1, 2013. The Company continued to expand its product offerings and distribution channels throughout 2014 and 2015. On February 24, 2015, the Company commenced a warrant exercise offering set to expire on February 24, 2016. On February 24, 2016, the Company extended the offering until February 24, 2017 and made additional shares available for purchase. All outstanding warrants expired on April 1, 2016. The Company ~~further~~has extended this offering to February 24, ~~2019 and subsequently to February 24, 2020.~~2021. During the 4^th4th quarter of 2017, the Company began a private placement offering to accredited investors in the state of North Dakota.

USALSC and DCLIC seek opportunities to develop and market additional products.

Our business model also anticipates the acquisition by USAC and/or USALSC of other insurance and insurance related companies, including third-party administrators, marketing organizations, and rights to other blocks of insurance business through reinsurance or other transactions.

Basis of presentation: The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods have been included.

The results of operation for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 are not necessarily indicative of the results to be expected for the year ended December 31, ~~2019~~2020 or for any other interim period or for any other future year. In particular, the impact of COVID-19 on the Company is evolving and its future effects on the Company's business, financial condition, results of operations, liquidity, and capital position are uncertain. Certain financial information which is normally included in notes to financial statements prepared in accordance with US GAAP, but which are not required for interim reporting purposes, has been condensed or omitted. The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s report on Form 10-K and amendments thereto for the year ended December 31, ~~2018.~~2019.

Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated from the consolidated financial statements.

Area of Operation: USALSC is authorized to operate in the states of Kansas, North Dakota, Missouri, Nebraska and Oklahoma. DCLIC is authorized to operate in the states of North Dakota and South Dakota. USALSC-Montana is authorized to operate in the state of Montana.

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Reclassifications: Certain reclassifications of a minor nature have been made to prior-year balances to conform to current-year presentation with no net impact to net ~~income/loss~~loss/income or equity.

Common stock and earnings (loss) per share: The par value for common stock is $0.10 per share with 20,000,000 shares authorized. As of ~~June 30, 2019,~~March 31, 2020, and December 31, ~~2018,~~2019, the ~~company~~Company had ~~7,707,090~~7,740,700 and ~~7,650,551~~7,734,004 common shares issued and outstanding, respectively.

Earnings (loss) per share attributable to the Company’s common stockholders were computed based on the net loss and the weighted average number of shares outstanding during each year. The weighted average number of shares outstanding during the quarters ended ~~June 30,~~March 31, 2020 and 2019 were 7,736,236 and ~~2018 were 7,697,969 and 7,389,200 shares, respectively. The weighted average number of shares outstanding during the six months ended June 30, 2019 and 2018 were 7,673,690 and 7,346,064~~7,664,837 shares, respectively. Potential common shares are excluded from the computation when their effect is anti-dilutive. Basic and diluted net loss per common share is the same for the quarters ended March 31, 2020 and ~~six months ended June 30, 2019 and 2018.~~2019.

New accounting standards

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance to clarify the principles for recognizing revenue. While insurance contracts are not within the scope of this updated guidance, the Company's fee income related to providing services will be subject to this updated guidance. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services.

The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when, or as, the entity satisfies a performance obligation.

In July 2015, the FASB deferred the effective date of the updated guidance on revenue recognition by one year to the quarter ending March 31, 2018. As an emerging growth company, the Company ~~has chosen~~chose to defer implementation of this accounting standard until the year ending December 31, ~~2019 and interim reporting periods beginning after December 31,~~ 2019. The adoption of this guidance isdid not ~~expected to~~ have a material effect on the Company’s result of operations, financial position or liquidity.

Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued updated guidance regarding financial instruments. This guidance intends to enhance reporting for financial instruments and addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The significant amendments in this update generally require equity investments to be measured at fair value with changes in fair value recognized in net income, require the use of an exit price notion when measuring the fair value of financial instruments for disclosure purposes and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. This guidance also intends to enhance the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments.

This guidance iswas effective for ~~fiscal years beginning after December 15, 2017. As an emerging growth company,~~ the Company ~~elected~~for the year ended December 31, 2019 and required a cumulative effect adjustment to ~~defer implementation~~opening retained earnings to be recorded for equity investments with readily determinable fair values. As of ~~this standard to fiscal years beginning after December 15, 2018.~~the adoption date, the Company held publicly traded equity investments with a fair value of $ 10,987,539 million in a net unrealized gain position of $ 1,098,760 million. The ~~recognition and measurement provisions of this guidance was applied by means of~~Company has recorded a cumulative-effect adjustment of $1,098,760 to ~~the balance sheet~~decrease Accumulated Other Comprehensive Income (AOCI) with a corresponding increase to accumulated deficit for unrealized gains as of the beginning of ~~the~~ fiscal year 2019. As a result of ~~adoption~~the implementation of ASU 2016-01, unrealized gains and ~~early adoption is not permitted.~~losses in equity investments with readily determinable fair values are recorded on the Consolidated Statements of Comprehensive Income (Loss) within net investment gains (losses). The ~~adoption~~Company recorded a gain in net investment gains (losses) of $1.1 million for year ended December 31, 2019 as a result of adopting this standard. The implementation of this guidance ~~did not have a material effect on~~is expected to increase volatility in our net income as the ~~Company’s financial position or liquidity but does create additional~~ volatility ~~when comparing period~~previously recorded in Statements of Comprehensive Income (Loss) (OCI) related to ~~period results.~~changes in the fair market value of available-for-sale equity investments will now be reflected in net income (loss) effective with the adoption date.

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Leases

In February 2016, the FASB issued updated guidance to require lessees to recognize a right-to-use asset and a lease liability for leases with terms of more than 12 months. The updated guidance retains the two classifications of a lease as either an operating or finance lease (previously referred to as a capital lease). Both lease classifications require the lessee to record the right-to-use asset and the lease liability based upon the present value of cash flows. Finance leases will reflect the financial arrangement by recognizing interest expense on the lease liability separately from the amortization expense of the right-to-use asset. Operating leases will recognize lease expense (with no separate recognition of interest expense) on a straight-line basis over the term of the lease. The accounting by lessors is not significantly changed by the updated guidance. The updated guidance requires expanded qualitative and quantitative disclosures, including additional information about the amounts recorded in the financial statements.

The updated guidance is effective for reporting periods beginning after December 15, 2018, and will require that the earliest comparative period presented include the measurement and recognition of existing leases with an adjustment to equity as if the updated guidance had always been applied. Early adoption is permitted. As an emerging growth company, the Company has elected to defer implementation of this standard to fiscal years beginning after December 15, ~~2019.~~2020. The adoption of this guidance is not expected to ~~have a material effect on the Company’s results of operations, financial position or liquidity.~~

~~Contingent Put and Call Options in Debt Instruments~~

In March 2016, the FASB issued updated guidance clarifying that when a call (put) option in a debt instrument can accelerate the repayment of principal on the debt instrument, a reporting entity does not need to assess whether the contingent event that triggers the ability to exercise the call (put) option is related to interest rates or credit risk in determining whether the option should be accounted for separately. The updated guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. As an emerging growth company, the Company elected to defer implementation of this standard to fiscal years beginning after December 15, 2017. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued updated guidance for the accounting for credit losses for financial instruments. The updated guidance applies a new credit loss model (current expected credit losses or CECL) for determining credit-related impairments for financial instruments measured at amortized cost (e.g. reinsurance recoverables) and requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The expected credit losses, and subsequent adjustments to such losses, will be recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.

The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists.

The updated guidance is effective for reporting periods beginning after December 15, 2019. Early adoption is permitted for reporting periods beginning after December 15, 2018. As an emerging growth company, the Company has elected to defer implementation of this standard to fiscal years beginning after December 15, ~~2020.~~2022. The Company will not be able to determine the impact that the updated guidance will have on its results of operations, financial position or liquidity until the updated guidance is adopted.

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Classification of Certain Cash Receipts and Cash ~~Receipts and Cash Payment~~Payment

In August 2016, the FASB issued new guidance that clarifies the classification of certain cash receipts and cash payments in the statement of cash flows under eight different scenarios including, but not limited to: (i) debt prepayment or debt extinguishment costs; (ii) proceeds from the settlement of corporate-owned life insurance policies including bank-owned life insurance policies; (iii) distributions received from equity method investees; and (iv) separately identifiable cash flows and application of the predominance principle. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. As an emerging growth company, the Company elected to defer implementation of this standard to fiscal years beginning after December 15, 2018. The implementation of this standard did not have a material impact on the Company’s statement of cash flows.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Cuts and Jobs Act). In February 2018, FASB issued guidance to address certain issues related to the Tax Cuts and Jobs Act. This new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued ASU 2018-12 “Targeted Improvements to the Accounting for Long-Duration Contracts.” ASU 2018-12 requires periodic reassessment of actuarial and discount rate assumptions used in the valuation of policyholder liabilities and deferred acquisition costs arising from the issuance of long-duration insurance and reinsurance contracts, with the effects of the changes in cash flow assumptions reflected in earnings and the effects of changes in discount rate assumptions reflected in other comprehensive income. Under current accounting guidance, the actuarial and discount rate assumptions are set at the contract inception date and not subsequently changed, except in limited circumstances. ASU 2018-12 also requires new disclosures and is effective for fiscal years beginning after December 15, ~~2020,~~2023, with early adoption permitted. We are evaluating the effect this standard will have on our Consolidated Financial Statements.

All other new accounting standards and updates of existing standards issued through the date of this filing were considered by management and did not relate to accounting policies and procedures pertinent or material to the Company at this time.

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Note 2.2. Investments

The amortized cost and fair value of available for sale and held to maturity investments as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 is as follows:

	June 30, 2019									March 31, 2020
	Cost or		Gross		Gross					Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized					Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value		Cost		Gains		Losses			Fair Value
	(unaudited)									(unaudited)
Available for sale:
Fixed maturities:
US Treasury securities	$	604,599	$	7,170	$	-		$	611,769	$	607,488	$	44,731	$	-		$	652,219
Corporate bonds		17,569,029		979,625		(71,441	)		18,477,213		19,275,711		1,181,877		(799,794	)		19,657,794
Municipal bonds		6,551,992		521,129		-			7,073,121		6,229,825		517,035		(1,991	)		6,744,869
Redeemable preferred stock		99,560		2,760		-			102,320		3,154,668		-		(337,743	)		2,816,925
Mortgage backed and asset backed securities		3,711,264		70,522		(8,010	)		3,773,776		2,980,626		50,942		(30,583	)		3,000,985
Total fixed maturities		28,536,444		1,581,206		(79,451	)		30,038,199		32,248,318		1,794,585		(1,170,111	)		32,872,792
Equities:
Equities		11,987,669		102,210		(354,160	)		11,735,719
Common stock											6,737,247		64,271		(1,002,104	)		5,799,414
Preferred stock											1,943,446		13,880		(69,305	)		1,888,021
Total equities											8,680,693		78,151		(1,071,409	)		7,687,435
Total available for sale	$	40,524,113	$	1,683,416	$	(433,611	)	$	41,773,918	$	40,929,011	$	1,872,736	$	(2,241,520	)	$	40,560,227

	December 31, 2019
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Available for sale:
Fixed maturities:
US Treasury securities	$	608,477	$	24,162	$	-		$	632,639
Corporate bonds		18,407,211		1,697,265		(20,079	)		20,084,397
Municipal bonds		6,538,883		518,059		(1,883	)		7,055,059
Redeemable preferred stock		2,097,206		36,687		-			2,133,893
Mortgage backed and asset backed securities		3,171,620		77,593		(2,309	)		3,246,904
Total fixed maturities		30,823,397		2,353,766		(24,271	)		33,152,892
Equities:
Common stock		9,064,262		239,490		(89,058	)		9,214,694
Preferred stock		918,688		8,121		-			926,809
Total equities		9,982,950		247,611		(89,058	)		10,141,503
Total available for sale	$	40,806,347	$	2,601,377	$	(113,329	)	$	43,294,395

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December 31, 2018

Cost or

Gross

Gross

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

Available for sale:

Fixed maturities:

US Treasury securities
$ 597,265 $ - $ (27,325 ) $ 569,940
Corporate bonds
16,847,623 43,051 (1,048,313 ) 15,842,361
Municipal bonds
6,559,854 118,890 (80,631 ) 6,598,113
Redeemable preferred stock
99,560 - (8,720 ) 90,840
Mortgage backed and asset backed securities
3,853,395 11,425 (83,835 ) 3,780,985
Total fixed maturities
27,957,697 173,366 (1,248,824 ) 26,882,239
Equities:

Equities
12,096,488 31,505 (1,140,454 ) 10,987,539
Total available for sale
$ 40,054,185 $ 204,871 $ (2,389,278 ) $ 37,869,778

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

The amortized cost and fair value of debt securities as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, by contractual maturity, are shown in the following table. Equity securities do not have stated maturity dates and therefore are not included in the following maturity summary. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

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~~US Alliance Corporation~~

~~Notes to Consolidated Financial Statements (unaudited)~~

	As of June 30, 2019				As of December 31, 2018				As of March 31, 2020				As of December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(unaudited)								(unaudited)
Amounts maturing in:
One year or less									$	99,991	$	100,174	$	99,987	$	100,239
After one year through five years	$	1,426,791	$	1,463,196	$	1,472,228	$	1,462,745		1,424,877		1,441,107		1,424,337		1,471,552
After five years through ten years		2,436,981		2,583,369		2,101,676		2,055,173		3,212,049		3,430,423		3,286,937		3,574,191
More than 10 years		20,861,848		22,115,538		20,430,838		19,492,496		21,376,107		22,083,178		20,743,310		22,626,113
Redeemable preferred stocks		99,560		102,320		99,560		90,840		3,154,668		2,816,925		2,097,206		2,133,893
Mortgage backed and asset backed securities		3,711,264		3,773,776		3,853,395		3,780,985		2,980,626		3,000,985		3,171,620		3,246,904
Total amortized cost and fair value	$	28,536,444	$	30,038,199	$	27,957,697	$	26,882,239	$	32,248,318	$	32,872,792	$	30,823,397	$	33,152,892

Proceeds from the sale of securities, maturities, and asset paydowns for the first ~~six~~three months of 2020 and 2019 ~~and 2018~~ were ~~$661,264~~$3,489,276 and ~~$183,226~~$52,582 respectively. Realized gains and losses related to the sale of securities are summarized ~~as follows:~~below:

Six Months Ended June 30,

(unaudited)

2019

2018

Gross gains
$ 3,951 $ 530
Gross losses
(18,479 ) (857 )
Net security gains (losses)
$ (14,528 ) $ (327 )

~~Proceeds from the sale of securities, maturities, and asset paydowns for the three months ended June 30, 2019 and 2018 were $608,682and $155,100 respectively. Realized gains and losses related to the sale of securities are summarized as follows:~~

Three Months Ended June 30,

(unaudited)

2019

2018

Gross gains
$ 3,951 $ 530
Gross losses
(18,479 ) (857 )
Net security losses
$ (14,528 ) $ (327 )

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	Three Months Ended March 31,
	(unaudited)
	2020			2019
Gross gains	$	44,295		$	-
Gross losses		(263,248	)		-
Net security gains (losses)	$	(218,953	)	$	-

Gross unrealized losses by duration are summarized as follows:

	Less than 12 months					Greater than 12 months					Total					Less than 12 months					Greater than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss			Value		Loss			Value		Loss			Value		Loss
June 30, 2019
	(unaudited)
March 31, 2020																(unaudited)
Available for sale:
Fixed maturities:
US Treasury securities	$	-	$	-		$	-	$	-		$	-	$	-
Corporate bonds		-		-			2,114,270		(71,441	)		2,114,270		(71,441	)	$	4,647,625	$	(799,794	)	$	-	$	-		$	4,647,625	$	(799,794	)
Municipal bonds		-		-			-		-			-		-			147,391		(1,991	)		-		-			147,391		(1,991	)
Redeemable preferred stock		-		-			-		-			-		-			2,816,926		(337,743	)		-		-			2,816,926		(337,743	)
Mortgage backed and asset backed securities		-		-			651,830		(8,010	)		651,830		(8,010	)		1,029,824		(30,583	)		-		-			1,029,824		(30,583	)
Total fixed maturities		-		-			2,766,100		(79,451	)		2,766,100		(79,451	)		8,641,766		(1,170,111	)		-		-			8,641,766		(1,170,111	)
Equities:
Equities		1,026,307		(23,549	)		8,209,041		(330,611	)		9,235,348		(354,160	)
Common stock																	4,816,906		(905,942	)		604,695		(96,162	)		5,421,601		(1,002,104	)
Preferred stock																	1,402,290		(69,305	)		-		-			1,402,290		(69,305	)
Total equities																	6,219,196		(975,247	)		604,695		(96,162	)		6,823,891		(1,071,409	)
Total available for sale	$	1,026,307	$	(23,549	)	$	10,975,141	$	(410,062	)	$	12,001,448	$	(433,611	)	$	14,860,962	$	(2,145,358	)	$	604,695	$	(96,162	)	$	15,465,657	$	(2,241,520	)

	Less than 12 months					Greater than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
December 31, 2019
Available for sale:
Fixed maturities:
Corporate bonds	$	967,848	$	(20,079	)	$	-	$	-		$	967,848	$	(20,079	)
Municipal bonds		46,646		(1,883	)		-		-			46,646		(1,883	)
Mortgage backed and asset backed securities		-		-			296,576		(2,309	)		296,576		(2,309	)
Total fixed maturities		1,014,494		(21,962	)		296,576		(2,309	)		1,311,070		(24,271	)
Equities:
Common stock		68,789		(6,920	)		3,174,847		(82,138	)		3,243,636		(89,058	)
Total equities		68,789		(6,920	)		3,174,847		(82,138	)		3,243,636		(89,058	)
Total available for sale	$	1,083,283	$	(28,882	)	$	3,471,423	$	(84,447	)	$	4,554,706	$	(113,329	)

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US Alliance Corporation

Less than 12 months

Greater than 12 months

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Loss

Value

Loss

Value

Loss

December 31, 2018
Available for sale:

Fixed maturities:

US Treasury securities
$ 251,206 $ (27,325 ) $ - $ - $ 251,206 $ (27,325 )
Corporate bonds
11,743,222 (948,539 ) 830,239 (99,774 ) 12,573,461 (1,048,313 )
Municipal bonds
2,114,260 (51,267 ) 859,305 (29,364 ) 2,973,565 (80,631 )
Redeemable preferred stock
90,840 (8,720 ) - - 90,840 (8,720 )
Mortgage backed and asset backed securities
544,714 (6,656 ) 2,448,551 (77,179 ) 2,993,265 (83,835 )
Total fixed maturities
14,744,242 (1,042,507 ) 4,138,095 (206,317 ) 18,882,337 (1,248,824 )
Equities:

Equities
3,312,528 (228,148 ) 7,440,504 (912,306 ) 10,753,032 (1,140,454 )
Total available for sale
$ 18,056,770 $ (1,270,655 ) $ 11,578,599 $ (1,118,623 ) $ 29,635,369 $ (2,389,278 )

Notes to Consolidated Financial Statements (unaudited)

Unrealized losses occur from market price declines that may be due to a number of factors, including economic downturns, changes in interest rates, competitive forces within an industry, issuer specific events, operational difficulties, lawsuits, and market pricing anomalies caused by factors such as temporary lack of liquidity.

The total number of securities in the investment portfolio in an unrealized loss position as of ~~June 30, 2019~~March 31, 2020 was ~~29,~~71, which represented an unrealized loss of ~~$433,611~~$2,241,520 of the aggregate carrying value of those securities. The 2971 securities breakdown as follows: 1127 bonds, 815 mortgage and asset backed securities, 118 preferred stocks, ~~2 high yield corporate bond funds, 2~~1 preferred stock index ~~funds,~~fund, 1 senior loan fund, and 49 common ~~stock.~~stocks. The Company determined that no securities were considered to be other-than-temporarily impaired as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

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~~US Alliance Corporation~~

~~Notes to Consolidated Financial Statements (unaudited)~~

Note 3.3. Fair Value Measurements

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. The Company uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

●

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement rate.

●

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

●

Level 3 inputs are unobservable for the asset or liability and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Investments, available for sale: Fair values of available for sale fixed maturity securities are provided by a third party pricing service. The pricing service uses a variety of sources to determine fair value of securities. The Company’s fixed maturity securities are highly liquid, which allows for a high percentage of the portfolio to be priced through pricing sources. Fair values for equity securities are also provided by a third party pricing service and are derived from active trading on national market exchanges.

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Note 3.3. Fair Value Measurements (Continued)

The following table presents the amounts of assets measured at fair value on a recurring basis as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

	June 30, 2019								March 31, 2020
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(unaudited)								(unaudited)
Available for sale:
Fixed maturities:
US Treasury securities	$	611,769	$	611,769	$	-	$	-	$	652,219	$	652,219	$	-	$	-
Corporate bonds		18,477,213		-		18,281,213		196,000		19,657,794		-		19,466,194		191,600
Municipal bonds		7,073,121		-		7,073,121		-		6,744,869		-		6,744,869		-
Redeemable preferred stock		102,320		-		102,320		-		2,816,925		-		2,816,925		-
Mortgage backed and asset backed securities		3,773,776		-		3,773,776		-		3,000,985		-		3,000,985		-
Total fixed maturities		30,038,199		611,769		29,230,430		196,000		32,872,792		652,219		32,028,973		191,600
Equities:
Equities		11,735,719		11,735,719		-		-
Common stock										5,799,414		5,389,644		409,770		-
Preferred stock										1,888,021		-		1,888,021		-
Total equities										7,687,435		5,389,644		2,297,791		-
Total	$	41,773,918	$	12,347,488	$	29,230,430	$	196,000	$	40,560,227	$	6,041,863	$	34,326,764	$	191,600

	December 31, 2018								December 31, 2019
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Available for sale:
Fixed maturities:
US Treasury securities	$	569,940	$	569,940	$	-	$	-	$	632,639	$	632,639	$	-	$	-
Corporate bonds		15,842,361		-		15,642,361		200,000		20,084,397		-		19,892,797		191,600
Municipal bonds		6,598,113		-		6,598,113		-		7,055,059		-		7,055,059		-
Redeemable preferred stock		90,840		-		90,840		-		2,133,893		-		2,133,893		-
Mortgage backed and asset backed securities		3,780,985		-		3,780,985		-		3,246,904		-		3,246,904		-
Total fixed maturities		26,882,239		569,940		26,112,299		200,000		33,152,892		632,639		32,328,653		191,600
Equities:
Equities		10,987,539		10,987,539		-		-
Common stock										9,214,694		9,169,694		45,000		-
Preferred stock										926,809		-		926,809		-
Total equities										10,141,503		9,169,694		971,809		-
Total	$	37,869,778	$	11,557,479	$	26,112,299	$	200,000	$	43,294,395	$	9,802,333	$	33,300,462	$	191,600

The Company discloses the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The estimated fair value approximates carrying value for accrued interest. The methodologies for other financial assets and financial liabilities are discussed below:

Cash and cash equivalents: The carrying amounts approximate fair value because of the short maturity of these instruments.

Investment income due and accrued: The carrying amounts approximate fair value because of the short maturity of these instruments.

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Policy loans: Policy loans are stated at unpaid principal balances. As these loans are fully collateralized by the cash surrender value of the underlying insurance policies, the carrying value of the policy loans approximates their fair value.

Federal Home Loan Bank Advances: FHLB advances are stated at the outstanding principal balances and the carrying value approximates fair value.

Policyholder deposits in deposit-type contracts: The fair value for policyholder deposits in deposit-type insurance contracts (accumulation annuities) is calculated using a discounted cash flow approach. Cash flows are projected using actuarial assumptions and discounted to the valuation date using risk-free rates adjusted for credit risk and the nonperformance risk of the liabilities.

The estimated fair values of the Company’s financial assets ~~excluding available for sale investments,~~ and liabilities at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are as follows:

	June 30, 2019				December 31, 2018				March 31, 2020
	(unaudited)								(unaudited)
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	3,943,050	$	3,943,050	$	2,077,646	$	2,077,646	$	7,227,537	$	7,227,537	$	7,227,537	$	-	$	-
Investment income due and accrued		285,653		285,653		286,890		286,890		354,528		354,528		-		354,528		-
Policy loans		57,083		57,083		56,539		56,539		141,650		141,650		-		-		141,650
Total Financial Assets (excluding available for sale investments)	$	4,285,786	$	4,285,786	$	2,421,075	$	2,421,075	$	7,723,715	$	7,723,715	$	7,227,537	$	354,528	$	141,650

Financial Liabilities:
Federal Home Loan Bank advance									$	1,000,000	$	1,000,000	$	-	$	-	$	1,000,000
Policyholder deposits in deposit-type contracts	$	17,993,557	$	17,429,418	$	16,626,218	$	15,361,164		35,409,722		37,721,270		-		-		37,721,270
Total Financial Liabilities	$	17,993,557	$	17,429,418	$	16,626,218	$	15,361,164	$	36,409,722	$	38,721,270	$	-	$	-	$	38,721,270

	December 31, 2019
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	6,678,805	$	6,678,805	$	6,678,805	$	-	$	-
Investment income due and accrued		321,362		321,362		-		321,362		-
Policy loans		118,930		118,930		-		-		118,930
Total Financial Assets (excluding available for sale investments)	$	7,119,097	$	7,119,097	$	6,678,805	$	321,362	$	118,930

Financial Liabilities:
Federal Home Loan Bank advance	$	1,000,000	$	1,000,000	$	-	$	-	$	1,000,000
Policyholder deposits in deposit-type contracts		19,396,614		19,186,265		-		-		19,186,265
Total Financial Liabilities	$	20,396,614	$	20,186,265	$	-	$	-	$	20,186,265

Note 4.4. Income Tax Provision

No income tax expense or (benefit) has been reflected for the quarters ended ~~June 30,~~March 31, 2020 and 2019 ~~or 2018~~ due to the lack of taxable net income generated by the Company and a change in the ~~100%~~ valuation allowance pertaining to the deferred tax asset. The difference between the reported amount of income tax expense and the amount expected based upon statutory rates is primarily due to the increase in the valuation allowance on deferred taxes.

The ~~estimated~~ net operating loss carryforwards for the Company are ~~$13,200,000~~$13,088,121 and ~~$12,938,533~~$12,577,367 as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The components of the deferred tax assets and liabilities due to book and tax differences are the following: fixed asset depreciation, net operating loss carryforward, net unrealized gains (losses) on investment securities, policyowner benefit reserves and deferred acquisition costs. The ~~net~~ deferred tax asset net of valuation allowance is ~~offset 100 percent by the valuation allowance.~~$431,158 as of March 31, 2020 and December 31, 2019, respectively.

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Note 5.5. Subsequent Events

All of the effects of subsequent events that provide additional evidence about conditions that existed at the balance sheet date, including the estimates inherent in the process of preparing the consolidated financial statements, are recognized in the consolidated financial statements. The Company does not recognize subsequent events that provide evidence about conditions that did not exist at the balance sheet date but arose after, but before the consolidated financial statements are issued. In some cases, unrecognized subsequent events are disclosed to keep the consolidated financial statements from being misleading.

The Company has evaluated subsequent events through ~~August 9, 2019,~~May 11, 2020, the date on which the consolidated financial statements were issued.

New Reinsurance Agreement

On April 15, 2020, The Company entered into a reinsurance agreement with American Life and Security Corporation. The agreement was effective January 1, 2020. Under this agreement, USALSC will assume a quota share percentage of a block of certain annuity contracts issued by American Life and Security Corporation. The Company recognized $15.4 million of annuity deposits in the first quarter and had a receivable from reinsurer of $13.5 as of March 31, 2020 as a result of this agreement.

Uncertainty Due to Covid-19 Pandemic

As a result of Covid-19, which was declared a pandemic on March 11, 2020, the United States, State and Local Governments, and other countries have taken measures that have suddenly limited economic output. Due to the decline in economic activity, the Company is faced with a sudden uncertainty as of the date of this report on its operations when considering its revenue sources and potential future liquidity needs. Management is actively monitoring the situation and the impact to its operations.

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~~ITEM~~ITEM 2. ~~MANAGEMENT’S DISCUSSION~~MANAGEMENT’S DISCUSSION AND ~~ANALYSIS~~ ANALYSISOF ~~FINANCIAL CONDITION~~ FINANCIAL CONDITIONAND ~~RESULTS~~ RESULTSOF ~~OPERATIONS~~ OPERATIONS

The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Form 10-Q. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, including disruptions to our business due to the COVID-19 pandemic, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements.

Overview

US Alliance Corporation (“USAC”) was formed as a Kansas corporation on April 24, 2009 for the purpose of raising capital to form a new Kansas-based life insurance company. We presently conduct our business through our five wholly-owned subsidiaries: USALSC, a life insurance corporation; DCLIC, a life insurance corporation; USALSC-Montana, a life insurance corporation; USAMC, an insurance marketing corporation; and USAIC, an investment management corporation.

On January 2, 2012, USALSC was issued a Certificate of Authority to conduct life insurance business in the State of Kansas. We began third party administrative services in 2015.

On August 1, 2017, the Company merged with Northern Plains Capital Corporation (“Northern Plains”) with the Company being the ultimate surviving entity. As a result of this merger, the Company acquired Dakota Capital Life Insurance Company which became a wholly owned subsidiary of USALSC.

On December 14, 2018, the Company acquired Great Western Life Insurance Company. Great Western Life Insurance Company was renamed US Alliance Life and Security Company – Montana and is a subsidiary of USALSC.

The Company assumes business under two reinsurance treaties. On January 1, 2013, the Company entered into an agreement to assume 20% of a certain block of health insurance policies from Unified Life Insurance Company. On September 30, ~~2017,~~2018, the Company entered into a coinsurance agreement to assume 100% of a certain block of life insurance policies from American Life and Security ~~Company.~~

Company ("ALSC"). On April 15, 2020, with an effective date of January 1, 2020, the Company entered into a second coinsurance agreement with ALSC to assume a quota share percentage of a block of annuity policies. As of March 31, 2020, the Company had assumed $15.4 million in annuity deposits under this agreement.

Critical Accounting Policies and Estimates

Our accounting and reporting policies are in accordance with GAAP. Preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The following is an explanation of our accounting policies and the estimates considered most significant by management. These accounting policies inherently require significant judgment and assumptions and actual operating results could differ significantly from management’s estimates determined using these policies. We believe the following accounting policies, judgments and estimates are the most critical to the understanding of our results of operations and financial position. A detailed discussion of significant accounting policies is provided in this report in the Notes to Consolidated Financial Statements included with this quarterly report.

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Valuation of Investments

The Company's principal investments are in fixed maturity and equity securities. Fixed maturity and equity securities, classified as available for sale, are carried at their fair value in the consolidated balance sheets, with unrealized gains or losses recorded in comprehensive income (loss). Our fixed income investment manager utilizes external independent third-party pricing services to determine the fair values of investment securities available for sale.

~~Table~~ The Covid-19 Pandemic and its related economic uncertainty has created additional volatility in the valuation of ~~Contents~~

our investments.

We have a policy and process in place to identify securities that could potentially have an impairment that is other-than-temporary. The assessment of whether impairments have occurred is based on a case-by-case evaluation of underlying reasons for the decline in fair value. We consider severity of impairment, duration of impairment, forecasted recovery period, industry outlook, financial condition of the issuer, issuer credit ratings and whether we intend to sell a security, or it is more likely than not that we would be required to sell a security, prior to the recovery of the amortized cost. New England Asset Management, our investment manager, provides analysis and support to the Company in making these determinations.

The recognition of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If we intend to sell a security or it is more likely than not that we would be required to sell a security prior to recovery of the amortized cost, the difference between amortized cost and fair value is recognized in the income statement as an other-than-temporary impairment. As it relates to debt securities, if we do not expect to recover the amortized basis, do not plan to sell the security and if it is not more likely than not that we would be required to sell a security before the recovery of its amortized cost, the other-than-temporary impairment would be recognized. We would recognize the credit loss portion through earnings in the income statement and the noncredit loss portion in accumulated other comprehensive loss.

Deferred Acquisition Costs

Incremental direct costs, net of amounts ceded to reinsurers, that result directly from and are essential to a product sale and would not have been incurred by us had the sale not occurred, are capitalized, to the extent recoverable, and amortized over the life of the premiums produced. 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.

Value of Business Acquired

Value of business acquired (VOBA) represents the estimated value assigned to purchased companies or insurance in force of the assumed policy obligations at the date of acquisition of a block of policies. At least annually, a review is performed of the models and the assumptions used to develop expected future profits, based upon management’s current view of future events. VOBA is reviewed on an ongoing basis to determine that the unamortized portion does not exceed the expected recoverable amounts. Management’s view primarily reflects our experience but can also reflect emerging trends within the industry. Short-term deviations in experience affect the amortization of VOBA in the period, but do not necessarily indicate that a change to the long-term assumptions of future experience is warranted. If it is determined that it is appropriate to change the assumptions related to future experience, then an unlocking adjustment is recognized for the block of business being evaluated. Certain assumptions, such as interest spreads and surrender rates, may be interrelated. As such, unlocking adjustments often reflect revisions to multiple assumptions. The VOBA balance is immediately impacted by any assumption changes, with the change reflected through the statements of comprehensive income as an unlocking adjustment in the amount of VOBA amortized. These adjustments can be positive or negative with adjustments reducing amortization limited to amounts previously deferred plus interest accrued through the date of the adjustment.

In addition, we may consider refinements in estimates due to improved capabilities resulting from administrative or actuarial system upgrades. We consider such enhancements to determine whether and to what extent they are associated with prior periods or simply improvements in the projection of future expected gross profits due to improved functionality. To the extent they represent such improvements, these items are applied to the appropriate financial statement line items in a manner similar to unlocking adjustments.

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VOBA is also reviewed on an ongoing basis to determine that the unamortized portion does not exceed the expected recoverable amounts. If it is determined from emerging experience that the premium margins or gross profits are less than the unamortized value of business acquired, then the asset will be adjusted downward with the adjustment recorded as an expense in the current period.

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Goodwill

Goodwill represents the excess of the amounts paid to acquire subsidiaries and other businesses over the fair value of their net assets at the date of acquisition. Goodwill is tested for impairment at least annually in the fourth quarter or more frequently if events or circumstances change that would indicate that a triggering event has occurred.

We assess the recoverability of indefinite-lived intangible assets at least annually or whenever events or circumstances suggest that the carrying value of an identifiable indefinite-lived intangible asset may exceed the sum of the future discounted cash flows expected to result from its use and eventual disposition. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

Reinsurance

In the normal course of business, we seek to limit aggregate and single exposure to losses on risk by purchasing reinsurance. The amounts reported in the consolidated balance sheets as reinsurance recoverable include amounts billed to reinsurers on losses paid as well as estimates of amounts expected to be recovered from reinsurers on insurance liabilities that have not yet been paid. Reinsurance recoverable on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Insurance liabilities are reported gross of reinsurance recoverable. Management believes the recoverables are appropriately established. We diversify our credit risks related to reinsurance ceded. Reinsurance premiums are generally reflected in income in a manner consistent with the recognition of premiums on the reinsured contracts. Reinsurance does not extinguish our primary liability under the policies written. We regularly evaluate the financial condition of our reinsurers including their activities with respect to claim settlement practices and commutations, and establish allowances for uncollectible reinsurance recoverable as appropriate.

Future Policy Benefits

We establish liabilities for amounts payable under insurance policies, including traditional life insurance and annuities. Generally, amounts are payable over an extended period of time. Liabilities for future policy benefits of traditional life insurance have been computed by using a net level premium method based upon estimates at the time of issue for investment yields, mortality and withdrawals. These estimates include provisions for experience less favorable than initially expected. Mortality assumptions are based on industry experience expressed as a percentage of standard mortality tables. Such liabilities are reviewed quarterly by an independent consulting actuary.We are uncertain as to the impact of the Covid-19 Pandemic on our future policy benefits.

Income Taxes

Deferred tax assets are recorded based on the differences between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are investments, insurance reserves, and deferred acquisition costs. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. We have no uncertain tax positions that we believe are more-likely-than-not that the benefit will not to be realized.

Recognition of Revenues

Revenues on traditional life insurance products consist of direct and assumed premiums reported as earned when due.

Amounts received as payment for annuities are recognized as deposits to policyholder account balances and included in future insurance policy benefits. Revenues from these contracts are comprised of investment earnings of the deposits, which are recognized over the period of the contracts, and included in revenue. Deposits are shown as a financing activity in the Consolidated Statements of Cash Flows.

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Mergers and ~~Acquisition Transactions~~Acquisitions

On May 23, 2017 the Company entered into a definitive merger agreement with Northern Plains Capital Corporation. The merger transaction closed on July 31, 2017. Northern Plains shareholders received .5841 shares of US Alliance Corporation stock for each share of Northern Plains stock owned. USAC issued 1,644,458 shares of common stock to holders of Northern Plains shares.

On October 11, 2018 the Company entered into a stock purchase agreement with Great Western Insurance Company to acquire Great Western Life Insurance Company. The transaction closed on December 14, 2018. USALSC paid $500,000 to acquire all of the outstanding shares of GWLIC.

New Accounting Standards

A detailed discussion of new accounting standards is provided in the Notes to Consolidated Financial Statements beginning on p. 8 of this quarterly report.

Discussion of Consolidated Results of Operations

~~Revenues.~~Revenues. Insurance revenues are primarily generated from premium revenues and investment income. Insurance revenues for the ~~six months ended June 30, 2019 and 2018 are summarized in the table below. Total revenues increased 19%.~~

Six Months Ended June 30,

2019

2018

Income:
(unaudited)
Premium income
$ 4,920,690 $ 4,874,480
Net investment income
861,038 700,770
Net realized gain (loss) on sale of securities
(14,528 ) (327 )
Unrealized gain on equity sercurites
845,817 -
Other income
25,058 15,994
Total income
$ 6,638,075 $ 5,590,917

~~Insurance revenues for the~~ three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ are summarized in the table below.

	Three Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2020			2019
	(unaudited)						(Unaudited)
Income:
Premium income	$	2,527,714		$	2,442,384		$	2,715,761		$	2,392,976
Net investment income		451,106			377,624			514,708			397,646
Net realized gain on sale of securities		(14,528	)		(327	)
Unrealized gain on equity sercurites		118,614			-
Net investment gains (losses)								(1,370,761	)		727,203
Other income		12,259			6,748			13,656			12,799
Total income	$	3,095,165		$	2,826,429			1,873,364			3,530,624

Our 2020 first quarter revenues decreased to $1,873,364, a decrease of $1,657,260 from the 2019 first ~~half revenues grew to $6,638,075, an increase of $1,047,158 from the 2018 first half~~quarter revenues of ~~$5,590,917. This increase is due the~~$3,530,624. The Company was required ~~implementation of~~to implement a new accounting standard in 2019 which results in unrealized gains and losses on equity securities being included in total income. This standard has resulted in increased volatility in our total income.

Premium revenue: Premium revenue for the first ~~six~~three months of 2020 was $2,715,761 compared to $2,392,976 in the first three months of 2019, ~~was $4,920,690 compared to $4,874,480 in the first six months of 2018,~~ an increase of ~~$46,210 or 1%. When compared to the last six months of 2018, premium revenue has increased by almost $1 million.~~

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~~Premium revenue for the three months ended June 30, 2019 was $2,527,714 compared to $2,442,384 in 2018, an~~$322,785. The increase ~~of $85,330 or 3%. This growth~~ was driven by an increase in our direct premiums ~~which were at an all-time high~~primarily as a result of increased pre-need sales. Even though it is a reduction in revenue, ceded premium increases reflect the ~~second quarter.~~

~~Direct, assumed and ceded~~growth of our group policy premiums ~~for the six months ended June 30, 2019 and 2018 are summarized in the following table.~~as we focused on small companies to assist them with their employee benefits.

Six Months Ended June 30,

2019

2018

(unaudited)
Direct
$ 2,603,097 $ 2,308,604
Assumed
2,743,577 2,849,479
Ceded
(425,984 ) (283,603 )
Total
$ 4,920,690 $ 4,874,480

Direct, assumed and ceded premiums for the three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ are summarized in the following table.

	Three Months ended June 30,						Three Months Ended March 31,
	2019			2018			2020			2019
	(unaudited)
Direct	$	1,411,318		$	1,169,237		$	1,577,225		$	1,191,780
Assumed		1,339,784			1,443,873			1,360,386			1,403,793
Ceded		(223,387	)		(170,726	)		(221,850	)		(202,597	)
Total	$	2,527,715		$	2,442,384		$	2,715,761		$	2,392,976

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The Company is pursuing new product and distribution opportunities to continue to increase premium ~~production.~~production on both a direct and assumed basis.

Investment income, net of expenses: The components of net investment income for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ are as follows:

	Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2020			2019
	(unaudited)						(unaudited)
Fixed maturities	$	585,033		$	467,178		$	366,731		$	302,294
Equity securities		285,076			246,591			150,189			114,586
Cash and short term investments		13,978			2,961			9,312			4,199
		884,087			716,730			526,232			421,079
Less investment expenses		(23,049	)		(15,960	)		(11,524	)		(23,433	)
	$	861,038		$	700,770		$	514,708		$	397,646

Net investment income for the first ~~six~~three months of ~~2019~~2020 was ~~$861,038,~~$514,708, compared to ~~$700,770~~$397,646 in ~~2018,~~2019, an increase of ~~$160,268~~$117,062 or ~~23%~~29%. This increase in investment income is primarily a result of increased invested assets as a result of our premium income, ~~and~~ annuity deposits, and ~~an improvement~~our new coinsurance treaty with American Life.

Net investments gains (losses): Net investment losses for the quarter ended March 31, 2020 were $1,370,761, compared to gains of $727,203 in 2019, a decrease of $2,097,964. The decrease in net investment gains is attributable to unrealized losses in our ~~book yield.~~

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~~The components of net investment income for the three months ended June 30, 2019 and 2018 are as follows:~~

Three Months Ended June 30,

2019

2018

(unaudited)

Fixed maturities
$ 282,739 $ 237,534
Equity securities
170,490 145,886
Cash and short term investments
9,779 2,214
463,008 385,634
Less investment expenses
(11,902 ) (8,010 )
$ 451,106 $ 377,624

Net investment income for the three months ended June 30, 2019 was $451,106, compared to $377,624 in 2018, an increase of $73,482 or 19%. This increase in investment income is primarily a result of increased invested assetsequity portfolio as a result of ~~our premium income and annuity deposits, and an improvement~~the Covid-19 pandemic. Net investments losses for 2020 were comprised of $1,151,808 of unrealized losses in our ~~book yield.~~

~~Net realized gains (loss) on investments:~~ ~~The Company had a minimal amount of~~equity portfolio and realized losses ~~during the first half~~ of $218,953. Net investment gains for 2019 ~~and 2018.~~

~~Unrealized gain on~~were comprised of $727,203 of unrealized gains in our equity ~~securities:~~ ~~The Company was required to implement a new accounting standard in the first quarter of 2019 which requires that the unrealized~~portfolio. Realized gains and losses ~~on equity~~related to the sale of securities ~~be reported~~for the quarters ended March 31, 2020 and 2019 are summarized as income on the Consolidated Statements of Comprehensive Income (Loss). This resulted in a first half of 2019 gain of $845,817 and a second quarter of 2019 gain of $118,614. This new required line item will introduce significant volatility to our results as short-term fluctuations in the value of our equity securities is required to be a part of the results of our operations.follows:

	Three Months Ended March 31,
	(unaudited)
	2020			2019
Gross gains	$	44,295		$	-
Gross losses		(263,248	)		-
Net security gains (losses)	$	(218,953	)	$	-

Other income: Other income for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 was ~~$25,058~~$13,656 compared to ~~$15,994~~$12,799 in ~~2018,~~2019, an increase of ~~$9,064. Other income for the six months ended June 30, 2019 was $12,259 compared to $6,748 in 2018, an increase~~$857.

Table of ~~$5,511.~~

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Expenses. Expenses for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ are summarized in the table below.

Six Months Ended June 30,

2019

2018

Expenses:
(unaudited)
Death claims
$ 724,316 $ 404,212
Policyholder benefits
2,305,295 2,315,779
Increase in policyholder reserves
1,437,658 1,507,612
Commissions, net of deferrals
413,599 319,978
Amortization of deferred acquisition costs
180,727 210,614
Amortization of value of business acquired
10,152 10,152
Salaries & benefits
502,727 543,340
Other operating expenses
722,515 858,816
Total expense
$ 6,296,989 $ 6,170,503

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~~Expenses for the three months ended June 30, 2019 and 2018 are summarized in the table below.~~

	Three Months Ended June 30,
	2019		2018		Three Months Ended March 31,
	(unaudited)				2020		2019
Expenses:
Death claims	$	328,649	$	168,838	$	481,712	$	395,667
Policyholder benefits		1,168,467		1,188,097		1,249,083		1,136,828
Increase in policyholder reserves		757,098		710,976		923,248		680,560
Commissions, net of deferrals		194,064		167,821		206,956		219,535
Amortization of deferred acquisition costs		117,825		120,259		575,210		62,902
Amortization of value of business acquired		5,076		5,076		5,076		5,076
Salaries & benefits		250,895		268,492		263,205		251,832
Other operating expenses		307,873		373,698		872,245		402,356
Total expense	$	3,129,947	$	3,003,257	$	4,576,735	$	3,154,756

Death and other benefits: Death benefits were ~~$724,316~~$481,712 in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 compared to ~~$404,212~~$395,667 in ~~2018,~~2019, an increase of ~~$320,104.~~$86,045. This increase is attributable to our growing block of in-force life insurance policies. We expect these claims to grow as we continue to increase the size of our in-force business.

Death benefits were $328,649 in the three months ended June 30, 2019 compared to $168,838 in 2018, an increase of $159,811. This increase is attributable to our growing block of in-force life insurance policies. We expect these claims to grow as we continue to increase the size of our in-force business.

Policyholder benefits: Policyholder benefits were ~~$2,305,295~~$1,249,083 in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 compared to ~~$2,315,779~~$1,136,828 in ~~2018, a decrease~~2019, an increase of ~~$10,484.~~$112,255. The primary driver of this ~~decrease~~increase is ~~a reduction in~~the growth of interest credited on our direct and assumed ~~benefits.~~

Policyholder benefits were $1,168,467 in the three months ended June 30, 2019 compared to $1,188,097 in 2018, a decrease of $19,630. The primary driver of this decrease is a reduction in assumed benefits.annuities.

Increase in policyholder reserves: Policyholder reserves increased $1,437,658 in the six months ended June 30, 2019, compared to $1,507,612 in 2018, a decrease of $69,954. The reduction in reserve increase is the result of the release of reserves to support claim payments.

~~Policyholder reserves increased $757,098~~$923,248 in the three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$710,976~~$680,560 in ~~2018,~~2019, an increase of ~~$46,122.~~$242,688. The growth in reserve increase is the result of higher pre-need ~~sales during the second quarter.~~sales.

Commissions, net of deferrals: The Company pays commissions to the ceding company on a block of assumed policies as well as commissions to agents on directly written business. Commissions, net of deferrals, were ~~$413,599 in the six months ended June 30, 2019, compared to $319,978 in 2018, an increase of $93,621. This increase is driven by an increase in group premiums.~~

~~Commissions, net of deferrals, were $194,064~~$206,956 in the three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$167,821~~$219,535 in ~~2018, an increase~~2019, a decrease of ~~$26,243.~~$12,579. This ~~increase~~decrease is driven by ~~an increase~~a change in ~~group premiums.~~composition of premiums collected.

Amortization of deferred acquisition costs: The amortization of deferred acquisition costs ("DAC") was $180,727 in the six months ended June 30, 2019, compared to $210,614 in 2018, a decrease of $29,887. The amortization decrease is attributable to a reduction in amortization of pre-need commissions and to reduced margins on our American Life block of policies.

~~The amortization of deferred acquisition costs was $117,825~~$575,210 in the three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$120,259~~$62,902 in ~~2018,~~2019, an increase of $512,308. As a ~~decrease~~result of ~~$2,434.~~ the covid-19 pandemic and the resulting historic low interest rates, the Company reassessed its DAC assumptions regarding reinvestment rates. As a result, the Company reduced its DAC balance by $430,000 to reflect the current reinvestment environment and the uncertainty of when interest rates will return to historic levels.

Amortization of value of business ~~acquired:~~acquired: The amortization of value of business acquired (“VOBA”) was ~~$10,152~~$5,076 in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019. Our VOBA balance was established August 1, 2017 with acquisition of DCLIC. VOBA is being amortized straight-line over 30 years. ~~The amortization of value of business acquired (“VOBA”) was $5,076 in the three months ended June 30, 2019 and 2018.~~

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Salaries and ~~benefits:~~benefits: Salaries and benefits were $502,727 for the six months ended June 30, 2019, compared to $543,340 in 2018, a decrease of $40,613 or 7%. Staffing costs decreased due to a reduction in the number of employees and a reduction in employee benefit costs.

~~Salaries and benefits were $250,895~~$263,205 for the three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$268,492~~$251,832 in ~~2018, a decrease~~2019, an increase of ~~$17,597. Staffing costs decreased due~~$11,373. The Company has maintained its staffing levels during the coronavirus pandemic to ~~a reduction in the number of employees and a reduction in employee benefit costs.~~insure that customer service needs continue to be met.

Other expenses: Other operating expenses were $722,515 in the six months ended June 30, 2019, compared to $858,816 in 2018, a decrease of $136,301 or 16%. Operating costs were driven lower due to decreased information technology costs and decreased selling and marketing expenses and lower than expected costs associated with our USALSC-Montana acquisition.

~~Other operating expenses were $307,873~~$872,245 in the three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$373,698~~$402,356 in ~~2018, a decrease~~2019, an increase of ~~$65,825 or 18%.~~$469,889. Operating costs were driven ~~lower~~higher due to ~~decreased information technology costs and decreased selling and marketing expenses and lower than expected costs associated with~~ our ~~USALSC-Montana acquisition. This was partially offset by~~pre-paid software asset being recognized as an expense ($250,000), increased accounting and actuarial ~~fees.~~fees ($72,568), and expenses associated with implementing a new disability reinsurance program ($50,000).

Net ~~Income:~~Income (Loss): Our net ~~income~~loss was ~~$341,086~~$2,703,371 in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 compared to a net ~~loss~~income of ~~$579,586~~$375,868 in the same period of ~~2018, an increase~~2019, a decrease of ~~$920,672.~~$3,079,239. Our net ~~income~~loss per share ~~increased~~decreased to ~~$0.04~~$0.35 from a net ~~loss~~income of ~~$0.08~~$0.05 in ~~2018,~~2019, basic and diluted. This ~~increase~~decrease is primarily attributable to ~~income from~~covid-19 impacts on unrealized ~~gains~~losses on our equity ~~securities.~~securities and on deferred acquisition costs as well as our software upgrade, increased accounting and actuarial costs, and the implementation of our new disability reinsurance program.

~~For the three months ended June 30, 2019, we experienced a small net loss~~

Table of ~~34,782 compared to a net loss of $176,828 in 2018. Net loss per share was $0.00 for 2019 compared to $0.02 in 2018.~~

Contents

Discussion of Consolidated Balance Sheet

Assets. Assets have increased to ~~$50,308,241~~$67,661,878 as of ~~June 30, 2019,~~March 31, 2020, an increase of ~~$5,779,252 or 13%~~$12,772,629 from December 31, ~~2018.~~2019. This is primarily the result of ~~the growth of~~ our ~~business and by an increase in the market value of our investments.~~new coinsurance agreement with ALSC.

Available for sale fixed maturity securities: As of ~~June 30, 2019,~~March 31, 2020, we had available for sale fixed maturity assets of ~~$30,038,199, an increase~~$32,872,792, a decrease of ~~$3,155,960 or 12%~~$280,100 from the December 31, ~~2018~~2019 balance of ~~$26,882,239.~~$33,152,892. The ~~increase~~decrease is driven by ~~the purchase of additional assets and an increase~~a decrease in the market value of these securities.

Available for sale equity securities: As of ~~June 30, 2019,~~March 31, 2020, we had available for sale equity assets of ~~$11,735,719, an increase~~$7,687,435, a decrease of ~~$748,180~~$2,454,068 from the December 31, ~~2018~~2019 balance of ~~$10,987,539.~~$10,141,503. This ~~growth~~reduction is driven by ~~an increase~~a decrease in the market value of our equity ~~securities.~~securities due primarily to the instability of equity markets and economic disruption caused by the COVID-19 pandemic.

Policy loans: As of ~~June 30, 2019,~~March 31, 2020, our policy loans were ~~$57,083,~~$141,650, an increase of ~~$544~~$22,720 from the December 31, ~~2018~~2019 balance of ~~$56,539.~~$118,930. The increase is the result of normal loan ~~activity.~~activity associated with increased policies.

Cash and cash equivalents: As of ~~June 30, 2019,~~March 31, 2020, we had cash and cash equivalent assets of ~~$3,943,050,~~$7,227,537, an increase of ~~$1,865,404~~$548,742 from the December 31, ~~2018~~2019 balance of ~~$2,077,646.~~$6,678,805. This increase is primarily the result of cash received from premium income.

~~Table of Contents~~

Investment income due and accrued: As of ~~June 30, 2019,~~March 31, 2020, our investment income due and accrued was ~~$285,653~~$354,528 compared to ~~$286,890~~$321,362 as of December 31, ~~2018, a decrease of $1.237.~~2019. This ~~decrease~~increase is attributable to normal investment ~~activity.~~activity and the growth of our invested assets.

Reinsurance related assets: As of ~~June 30, 2019,~~March 31, 2020, our reinsurance related assets were ~~$181,359,~~$13,782,795, an increase of ~~$19,513~~$13,594,413 from the December 31, ~~2018~~2019 balance of ~~$161,846.~~$188,382. This increase ~~was driven by an increase in~~reflects the ~~amounts receivable~~initial settlement amount due from ALSC on our ~~reinsurance business.~~new coinsurance agreement.

Deferred acquisition costs, net: As of ~~June 30, 2019,~~March 31, 2020, our deferred acquisition costs were ~~$2,752,733, a decrease~~$3,873,837, an increase of ~~$4,671~~$1,221,163 from the December 31, ~~2018~~2019 balance of ~~$2,757,404.~~$2,652,674. The ~~decrease~~increase is ~~driven by amortization~~the result of costs deferred on our new coinsurance agreement with ~~ALSC.~~American Life.

Value of business acquired, net: As of ~~June 30, 2019,~~March 31, 2020, our value of business acquired asset was ~~$570,145,~~$554,918, a decrease of ~~$10,152~~$5,076 from the December 31, ~~2018~~2019 balance of ~~$580,297.~~$559,994. This asset was established in the third quarter of 2017 as a result of our acquisition of DCLIC. The decrease is the result of amortization of the asset.

~~Property, equipment and software, net~~: As of June 30, 2019, our property, equipment and software assets were $48,959, a decrease of $5,119 from the December 31, 2018 balance of $54,078. This decrease is a result of normal amortization during the period.

Goodwill: As of ~~June 30, 2019,~~March 31, 2020, our goodwill was $277,542 and was unchanged from the December 31, ~~2018~~2019 balance. Goodwill was established as a result of our merger with Northern Plains.

Property, equipment and software, net: As of March 31, 2020, our property, equipment and software assets were $41,282, a decrease of $2,559 from the December 31, 2019 balance of $43,841. This decrease is a result of normal amortization during the period.

Deferred tax asset, net of valuation allowance: As of March 31, 2020, the Company had a deferred tax asset of $431,158 and was unchanged from the December 31, 2019 balance.

Other assets: As of ~~June 30, 2019,~~March 31, 2020, our other assets were ~~$417,799,~~$416,404, an increase of ~~$10,830~~$44,238 from the December 31, ~~2018~~2019 balance of ~~$406,969.~~$372,166. This increase was the result of ~~an increase~~pre-paid option expenses offset by a reduction in our pre-paid ~~assets.~~software asset.

Liabilities. Our total liabilities were ~~$34,588,743~~$55,198,776 as of ~~June 30, 2019,~~March 31, 2020, an increase of ~~$2,692,420 or 8%~~$17,135,174 from our December 31, ~~2018~~2019 liability of ~~$31,896,323.~~$38,063,052. This increase is driven by an increase in our policyholder ~~liabilities.~~liabilities as a result of our new ALSC agreement.

Policy liabilities: Our total policy liabilities as of ~~June 30, 2019~~March 31, 2020 were ~~$34,406,616,~~$53,937,300, an increase of ~~$2,850,087 or 9%~~$17,012,415 from the December 31, ~~2018~~2019 balance of ~~$31,556,529.~~$36,924,885. This increase is ~~the result~~driven by annuities assumed under our new ~~policy sales and the growth of our in-force policies.~~coinsurance agreement with ALSC.

Accounts payable and accrued expenses: As of ~~June 30, 2019,~~March 31, 2020, our accounts payable and accrued expenses were ~~$167,948, a decrease~~$163,397, an increase of ~~$143,134~~$40,416 from the December 31, ~~2018~~2019 balance of ~~$311,082.~~$122,981. This ~~decrease~~increase is ~~driven by~~ the ~~release~~result of ~~expense accruals associated with our USALSC-Montana acquisition.~~normal operating activity.

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Federal Home Loan Bank advance: In October of 2019, the Company took an advance of $1,000,000 from the Federal Home Loan Bank of Topeka (“FHLB”), which was outstanding as of March 31, 2020 and December 31, 2019.

Other liabilities: As of ~~June 30, 2019,~~March 31, 2020, our other liabilities were ~~$14,179, a decrease~~$98,079, an increase of ~~$14,533~~$82,893 from the December 31, ~~2018~~2019 balance of ~~$28,712.~~$15,186. The increase is the result of securities payable at the end of the first quarter.

Shareholders’ Equity. Our shareholders’ equity was ~~$15,719,498~~$12,463,102 as of ~~June 30, 2019, an increase~~March 31, 2020, a decrease of ~~3,086,832 or 24%~~$4,413,095 from our December 31, ~~2018~~2019 shareholders’ equity of ~~$12,632,666.~~$16,876,197. The ~~increase~~decrease in shareholders’ equity was driven by ~~an increase~~a decrease in other comprehensive income and our net ~~income~~loss during the ~~period. Other comprehensive income consists~~period, both of which were materially impacted by the ~~unrealized gains and losses on our fixed maturity portfolio.~~Covid-19 pandemic.

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Investments and Cash and Cash Equivalents

Our investment philosophy is reflected by the allocation of our investments. We emphasize investment grade debt securities with smaller holdings in equity securities and other investments. The following table shows the carrying value of our investments by investment category and cash and cash equivalents, and the percentage of each to total invested assets as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

	June 30, 2019					December 31, 2018					March 31, 2020					December 31, 2019
	Fair		Percent			Fair		Percent			Fair		Percent			Fair		Percent
	Value		of Total			Value		of Total			Value		of Total			Value		of Total
	(unaudited)										(unaudited)
Fixed maturities:
US Treasury securities	$	611,769		1.3	%	$	569,940		1.4	%	$	652,219		1.4	%	$	632,639		1.3	%
Corporate bonds		18,477,213		40.4	%		15,842,361		39.7	%		19,657,794		41.1	%		20,084,397		40.2	%
Municipal bonds		7,073,121		15.5	%		6,598,113		16.5	%		6,744,869		14.1	%		7,055,059		14.1	%
Redeemable preferred stocks		102,320		0.2	%		90,840		0.2	%		2,816,925		5.9	%		2,133,893		4.3	%
Mortgage backed and asset backed securities		3,773,776		8.3	%		3,780,985		9.5	%		3,000,985		6.3	%		3,246,904		6.5	%
Total fixed maturities		30,038,199		65.7	%		26,882,239		67.3	%		32,872,792		68.8	%		33,152,892		66.3	%
Equities		11,735,719		25.7	%		10,987,539		27.5	%
Equities:
Common stock												5,799,414		12.1	%		9,214,694		18.4	%
Preferred stock												1,888,021		4.0	%		926,809		1.9	%
Total equities												7,687,435		16.1	%		10,141,503		20.3	%
Cash and cash equivalents		3,943,050		8.6	%		2,077,646		5.2	%		7,227,537		15.1	%		6,678,805		13.4	%
Total	$	45,716,968		100.0	%	$	39,947,424		100.0	%	$	47,787,764		100.0	%	$	49,973,200		100.0	%

The total value of our investments and cash and cash equivalents ~~increased~~decreased to ~~$45,716,968~~$47,787,764 as of ~~June 30, 2019~~March 31, 2020 from ~~$39,947,424~~$49,973,200 at December 31, ~~2018, an increase~~2019, a decrease of ~~$5,769,544 or 14%. Increases~~$2,185,436. Decreases in investments are primarily attributable to ~~premiums and annuity deposits received by USALSC and DCLIC and an increase~~a reduction in ~~the fair value of our invested assets.~~market values.

The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

	June 30, 2019					December 31, 2018					March 31, 2020					December 31, 2019
	Fair		Percent			Fair		Percent			Fair		Percent			Fair		Percent
	Value		of Total			Value		of Total			Value		of Total			Value		of Total
	(unaudited)					(unaudited)					(unaudited)
AAA and U.S. Government	$	1,200,536		4.0	%	$	1,690,399		6.3	%	$	1,103,998		3.4	%	$	1,201,046		3.6	%
AA		8,381,021		27.9	%		7,933,254		29.5	%		7,494,611		22.8	%		7,901,834		23.8	%
A		7,127,438		23.7	%		6,173,746		23.0	%		8,349,561		25.4	%		8,446,360		25.5	%
BBB		12,831,651		42.7	%		10,551,468		39.3	%		12,693,702		38.6	%		13,832,629		41.7	%
BB		301,553		1.0	%		333,372		1.2	%		3,039,320		9.2	%		1,579,423		4.8	%
Not Rated - Private Placement		196,000		0.7	%		200,000		0.7	%		191,600		0.6	%		191,600		0.6	%
Total	$	30,038,199		100.0	%	$	26,882,239		100.0	%	$	32,872,792		100.0	%	$	33,152,892		100.0	%

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Reflecting the high quality of securities maintained by us, ~~98.1%~~94.6% of all fixed maturity securities were investment grade as of December 31, ~~2018.~~2019. As of ~~June 30, 2019, 98.3%~~March 31, 2020, 90.2% of all fixed maturity securities were investment grade.

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The amortized cost and fair value of debt securities as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, by contractual maturity, are shown below. Equity securities do not have stated maturity dates and therefore are not included in the following maturity summary. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	As of June 30, 2019				As of December 31, 2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		As of March 31, 2020				As of December 31, 2019
	(unaudited)								Amortized Cost		Fair Value		Amortized Cost		Fair Value
Amounts maturing in:									(unaudited)
One year or less									$	99,991	$	100,174	$	99,987	$	100,239
After one year through five years	$	1,426,791	$	1,463,196	$	1,472,228	$	1,462,745		1,424,877		1,441,107		1,424,337		1,471,552
After five years through ten years		2,436,981		2,583,369		2,101,676		2,055,173		3,212,049		3,430,423		3,286,937		3,574,191
More than 10 years		20,861,848		22,115,538		20,430,838		19,492,496		21,376,107		22,083,178		20,743,310		22,626,113
Redeemable preferred stocks		99,560		102,320		99,560		90,840		3,154,668		2,816,925		2,097,206		2,133,893
Mortgage backed and asset backed securities		3,711,264		3,773,776		3,853,395		3,780,985		2,980,626		3,000,985		3,171,620		3,246,904
Total amortized cost and fair value	$	28,536,444	$	30,038,199	$	27,957,697	$	26,882,239	$	32,248,318	$	32,872,792	$	30,823,397	$	33,152,892

Market Risk of Financial Instruments

We hold a diversified portfolio of investments that primarily includes cash, bonds and equity securities. Each of these investments is subject to market risks that can affect their return and their fair value. A majority of the investments are fixed maturity securities including debt issues of corporations, US Treasury securities, or securities issued by government agencies. The primary market risks affecting the investment portfolio are interest rate risk, credit risk, and equity risk. The Company's investment portfolio, including the creditworthiness and valuation of investment assets, as well as availability of new investments may be adversely affected as a result of market developments related to the COVID-19 pandemic and uncertainty regarding its ultimate severity and duration.

Interest Rate Risk

Interest rate risk arises from the price sensitivity of investments to changes in interest rates. Interest represents the greatest portion of an investment's return for most fixed maturity securities in stable interest rate environments. The changes in the fair value of such investments are inversely related to changes in market interest rates. As interest rates fall, the interest and dividend streams of existing fixed-rate investments become more valuable and fair values rise. As interest rates rise, the opposite effect occurs. The COVID-19 pandemic has resulted in volatility, historically low interest rates, and previously unknown credit risk.

We attempt to mitigate our exposure to adverse interest rate movements through laddering the maturities of the fixed maturity investments and through maintaining cash and other short term investments to assure sufficient liquidity to meet our obligations and to address reinvestment risk considerations. Due to the composition of our book of insurance business, management believes it is unlikely that we would encounter large surrender activity due to an interest rate increase that would force the disposal of fixed maturities at a loss.

Credit Risk

We are exposed to credit risk through counterparties and within the investment portfolio. Credit risk relates to the uncertainty associated with an obligor's ability to make timely payments of principal and interest in accordance with the contractual terms of an instrument or contract. We manage our credit risk through established investment policies and guidelines which address the quality of creditors and counterparties, concentration limits, diversification practices and acceptable risk levels. These policies and guidelines are regularly reviewed and approved by senior management and USAC's Board of Directors.

Liquidity and Capital Resources

~~Our~~The impact of COVID-19 on the Company is evolving, and its future effects are not yet quantifiable and the Company is closely monitoring the effects and risks of COVID-19 to assess its impact on the Company's business, sales, financial condition, results of operations, ~~have generated operating losses since we were incorporated in 2009. In the first six months~~liquidity and capital position.

Table of ~~2019, USAC has been profitable.~~

Contents

Premium income, deposits to policyholder account balances, investment income, and capital raising are the primary sources of funds while withdrawals of policyholder account balances, investment purchases, policy benefits in the form of claims, and operating expenses are the primary uses of funds. To ensure we will be able to pay future commitments, the funds received as premium payments and deposits are invested in primarily fixed income securities. Funds are invested with the intent that the income from investments, plus proceeds from maturities, will in the future meet our ongoing cash flow needs. The approach of matching asset and liability durations and yields requires an appropriate mix of investments. Our investments consist primarily of marketable debt securities that could be readily converted to cash for liquidity needs. Cash flow projections and cash flow tests under various market interest scenarios are also performed annually to assist in evaluating liquidity needs and adequacy.

~~Table~~ As a member of ~~Contents~~

the Federal Home Loan Bank, USALSC has immediate access to additional cash liquidity.

Net cash ~~provided by~~used in operating activities was ~~$1,171,351~~$14,880,589 for the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. The primary sources of cash from operating activities were premiums and deposits received from policyholders. The primary uses of cash for operating activities were for payments of commissions to agents and settlement of policy liabilities. Net cash used in investing activities was ~~$502,607.~~$384,545. The primary use of cash was the purchase of available for sale securities. Cash provided by financing activities was ~~$1,196,660.~~$15,813,866. The primary sources of cash were receipts on deposit-type ~~contracts and issuance of common stock.~~contracts.

At ~~June 30, 2019,~~March 31, 2020, we had cash and cash equivalents totaling ~~$3,943,050.~~$7,227,537. We believe that our existing cash and cash equivalents and premiums from our insurance operations will be sufficient to fund the anticipated operating expenses and capital expenditures for the foreseeable future. We have based this estimate upon assumptions that may prove to be wrong and we could use our capital resources sooner than we currently expect. The growth of USALSC and DCLIC, our insurance subsidiaries, is ~~a member of the Federal Home Loan Bank of Topeka which further increases the liquidity option available~~uncertain and will require additional capital if they continue to ~~the Company.~~grow.

Impact of Inflation

Insurance premiums are established before the amount of losses, or the extent to which inflation may affect such losses and expenses, are known. We attempt, in establishing premiums, to anticipate the potential impact of inflation. If, for competitive reasons, premiums cannot be increased to anticipate inflation, this cost would be absorbed by us. Inflation also affects the rate of investment return on the investment portfolio with a corresponding effect on investment income.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

~~ITEM 3.~~ ITEM3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company”, the Company does not provide disclosure pursuant to this item.

~~ITEM 4.~~ITEM4. CONTROLS AND PROCEDURES

We have established disclosure controls and procedures to ensure, among other things, material information relating to our Company, including our consolidated subsidiaries, is made known to our officers who certify our financial reports and to the other members of our senior management and the Board of Directors.

As required by Exchange Act Rule 13a-15(b), management of the Company, including the Chief Executive Officer and the Vice President conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e). Based upon an evaluation at the end of the period, the Chief Executive Officer and the Vice President concluded that the disclosure controls and procedures are effective in timely alerting them to material information relating to us and our consolidated subsidiaries required to be disclosed in our periodic reports under the exchange act.

There were no changes to the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s control over financial reporting.

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Part II – Other Information

~~ITEM~~ITEM 1. ~~LEGAL PROCEEDINGS~~LEGAL PROCEEDINGS

We are involved in litigation incidental to our operations from time to time. We are not presently a party to any legal proceedings other than litigation arising in the ordinary course of business, and we are not aware of any claims that could materially affect our financial position or results of operation.

~~Table of Contents~~

~~ITEM~~ITEM 1A. ~~RISK FACTORS~~RISK FACTORS

As a “smaller reporting company”, the Company is not required to provide disclosure pursuant to this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF ~~PROCEEDS.~~PROCEEDS.

During the quarter ended ~~June 30, 2019,~~March 31, 2020, the Company issued ~~1,321~~2,696 shares of common stock, for aggregate consideration of ~~$9,247,~~$18,872, pursuant to an offering to residents of the state of Kansas that was registered with the Kansas Securities Commissioner.

The offering of shares in the above described transaction was self-underwritten and sold through agents of the Company licensed to sell securities in Kansas. Proceeds from the sale of common stock were used to finance the growth of the Company’s life insurance subsidiary and to provide working capital for the Company. The offer and sale of common stock was exempt from registration under Section 3(a)11 of the Securities Act of 1933 for securities offered and sold on a wholly intrastate basis. The shares of common stock were sold only to bona fide residents of the state of Kansas.

During the quarter ended ~~June 30, 2019,~~March 31, 2020, the Company issued ~~12,361~~4,000 shares of common stock, for aggregate consideration of ~~$86,527,~~$28,000, pursuant to a private placement offering to residents of the state of North Dakota (the “North Dakota Offering”). Proceeds from the sale of shares in the North Dakota were used to finance the growth of DCLIC and to provide working capital for the Company. The North Dakota Offering and sales of shares thereunder were not registered with the SEC in reliance on an exemption for registration under Rule 506(b) of Regulation D under this Securities Act of 1933 (“Reg D”). Shares were sold only to “accredited investors”, as that term is defined in Rule 501 of Reg D, and were not sold by any means of general advertisement or solicitation.

~~ITEM~~ITEM 3. ~~DEFAULTS UPON SENIOR SECURITIES~~DEFAULTS UPON SENIOR SECURITIES

None

~~ITEM~~ITEM 4. ~~MINE SAFETY DISCLOSURES~~ MINE SAFETY DISCLOSURES

Not Applicable

��

~~ITEM~~ITEM 5. ~~OTHER INFORMATION~~ OTHER INFORMATION

None.

~~ITEM~~ITEM 6. ~~EXHIBITS~~EXHIBITS

3.1			Articles of Incorporation of US Alliance Corporation (filed as Exhibit 3.1 to the Company’s Registration Statement on Form 10 filed on May 2, 2016 (File No. 000-55627), is incorporated herein by reference as Exhibit 3.1)

3.1.1			First Amendment to ~~the~~ Articles of Incorporation of US Alliance Corporation, filed as Exhibit 3.1.1 to the ~~Company’s~~Company's Current Report on Form 8-K filed on June 9, 2017 (File No. 000-55627), is incorporated herein by reference a Exhibit 3.1.1.

3.1.2			Second Amendment to Articles of Incorporation of US Alliance Corporation, filed as Exhibit 3.1.2 to the Company's Current Report on Form 8-K filed on June 9, 2017 (File No. 000-55627), is incorporated herein by reference as Exhibit ~~3.1.1~~ 3.1.2.

Table of Contents

~~3.1.2~~

Second Amendment to the Articles of Incorporation of US Alliance Corporation, filed as Exhibit 3.1.2 to the Company’s Current Report on Form 8-K filed on June 9, 2017 (File No. 000-55627), is incorporated herein by reference as Exhibit 3.1.2.

3.2			Bylaws of US Alliance Corporation (filed as Exhibit 3.2 to the Company’s Registration Statement on Form 10 filed on May 2, 2016 (File No. 000-55627), is incorporated herein by reference as Exhibit 3.2).

3.2.1			Amendment No. 11. to the ~~Bylaws~~bylaws of US Alliance Corporation, filed as Exhibit 3.2.1 to the ~~Company’s~~Company's Current Report on Form 8-K filed on June 9, 2017 (File No. 000-55627), is incorporated herein by reference as Exhibit ~~3.1.1~~ 3.2.1.

10.12*			Coinsurance Agreement, effective January 1, 2020, between US Alliance Life and Security Company and American Life and Security Corporation

31.1*
~~31.1~~	Certification of Chief Executive Officer of US Alliance Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~31.2~~31.2*		Certification of Principal Financial Officer of US Alliance Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~Table of Contents~~


~~32.1~~32.1*		Certifications of the Chief Executive Officer of US Alliance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~32.2~~32.2*		Certifications of the Principal Financial Officer of US Alliance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS**	~~XBRL Instance~~

101.SCH**	~~XBRL Taxonomy Extension Schema~~

101.CAL**	~~XBRL Taxonomy Extension Calculation~~

101.DEF**	~~XBRL Taxonomy Extension Definition~~

101.LAB**	~~XBRL Taxonomy Extension Labels~~

101.PRE**

101.INS** XBRL Instance

101.SCH** XBRL Taxonomy Extension Schema

101.CAL** XBRL Taxonomy Extension Calculation

101.DEF** XBRL Taxonomy Extension Definition

101.LAB** XBRL Taxonomy Extension Labels

101.PRE** XBRL Taxonomy Extention Presentation

**XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

* Filed herewith

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly ~~authorized~~authorized.

US Alliance Corporation

(Registrant)

Date

By /s/ Jack H. Brier

Jack H. Brier, President and Chairman

	Three Months Ended June 30,
	2019			2018
	(unaudited)
Fixed maturities	$	282,739		$	237,534
Equity securities		170,490			145,886
Cash and short term investments		9,779			2,214
		463,008			385,634
Less investment expenses		(11,902	)		(8,010	)
	$	451,106		$	377,624