Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | |
May 31, 2017 | Nov. 30, 2016 | |
Document and Entity Information | ||
Entity Registrant Name | JACOBS FINANCIAL GROUP, INC. | |
Entity Trading Symbol | JFGI | |
Document Type | 10-K | |
Document Period End Date | May 31, 2017 | |
Amendment Flag | false | |
Entity Central Index Key | 857,501 | |
Current Fiscal Year End Date | --05-31 | |
Entity Common Stock, Shares Outstanding | 385,892,203 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Entity Well-known Seasoned Issuer | No | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | FY | |
Entity Public Float | $ 962,731 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | May 31, 2017 | May 31, 2016 |
Investments and Cash: | ||
Bonds and mortgaged-back securities available for sale, at fair value (amortized cost - 5/31/17 $33,634,403; 5/31/16 $7,170,789) | $ 33,546,645 | $ 7,230,261 |
Equity investments available for sale, at fair value, net | 2,422,476 | 1,488,440 |
Mortgage-back securities held to maturity, at amortized costs (market value - 5/31/10 $0; 05/31/09 $5,157,936) (cost - 5/31/17 $2,465,221; 5/31/16 $1,550,217) | 0 | 0 |
Short-term investmentst $1,857,601 total held before restrictions) | 0 | 0 |
Cash | 240,153 | 250,603 |
Restricted cash and short term investments | 2,165,770 | 412,959 |
Total Investments and Cash | 38,375,044 | 9,382,263 |
Investment income due and accrued | 299,555 | 63,545 |
Premiums and other accounts receivable, net of allowance for doubtful accounts of $15,053 and $40,658, respectively | 540,775 | 291,856 |
Prepaid reinsurance premium | 418,124 | 232,647 |
Demand note receivable from related party | 0 | 0 |
Funds deposited with Reinsurers | 0 | 0 |
Deferred policy acquisition costs | 367,609 | 171,883 |
Furniture, automobile, and equipment, net of accumulated depreciation of $83,845 and $112,627, respectively | 37,245 | 1,233 |
Note receivable | 364,525 | 360,671 |
Related party note receivable | 960,540 | 1,121,294 |
Due from related party | 939,945 | 515,488 |
Other assets | 16,780 | 14,617 |
Intangible assets | 150,000 | 150,000 |
TOTAL ASSETS | 42,470,142 | 12,305,497 |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||
Reserve for losses and loss expenses, net | 2,521,921 | 1,931,779 |
Reserve for unearned premiums | 1,346,668 | 681,075 |
Advanced premium | 21,740 | 45,968 |
Contractual liability for collateral invested, net | 327,217 | 431,814 |
Accrued expenses and professional fees payable | 1,059,206 | 527,874 |
Accounts payable | 242,708 | 244,096 |
Ceded reinsurance payable | 422,017 | 27,898 |
Due to related party | 124,323 | 124,723 |
Term and demand notes payable to related party | 2,343,999 | 2,331,473 |
Demand notes payable to related party | 0 | 0 |
Notes payable | 5,059,385 | 5,045,969 |
Accrued interest payable | 651,834 | 561,307 |
Accrued interest payable to related party | 31,853 | 24,073 |
Deferred sale of FSC stock | 0 | 1,500,000 |
Other liabilities | 267,133 | 92,588 |
Amounts held for accounts of others | 21,926,872 | 2,068,252 |
Total Liabilities | 44,938,919 | 23,640,986 |
Mandatorily redeemable convertible Series A Preferred Stock, $.0001 par value per share; 1 million shares authorized; 1,549 shares issued and outstanding at May 31, 2017 and May 31, 2016, respectively; stated liquidation value of $1,000 per share; aggregate liquidation value at May 31, 2017 and May 31, 2016, of $2,247,290 and $2,159,602, respectively. | 2,159,602 | |
Total Mandatorily Redeemable Convertible Preferred Stock | 2,247,290 | 2,159,602 |
Stockholders' Equity (Deficit) | ||
Common stock, $.0001 par value per share; 490 million shares authorized; 385,892,203 and 385,092,203 shares issued and outstanding at May 31, 2017 and May 31, 2016, respectively | 38,071 | 37,991 |
Additional paid in capital | 5,231,327 | 4,615,374 |
Accumulated deficit | (35,773,897) | (33,159,411) |
Accumulated other comprehensive income | (130,503) | (2,305) |
Preferred stock of FSC, par value $1,000 per share; 50,000 authorized, 8,000 shares outstanding (all non-controlling) | 8,000,000 | 0 |
Noncontrolling Interest | 2,189,266 | 540,420 |
Total Stockholders' Equity (Deficit) | (4,716,066) | (13,495,091) |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | 42,470,142 | 12,305,497 |
Series A Preferred Stock [Member] | ||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||
Mandatorily redeemable | 1,670,945 | |
Series C Preferred Stock [Member] | ||
Stockholders' Equity (Deficit) | ||
Series C Preferred Stock, $.0001 par value per share: 10,000 shares authorized; 6,805 shares issued and outstanding at May 31, 2017 and May 31, 2016, respectively; includes $9,698,738 and $8,441,909 accrued Series C dividends, respectively; aggregate liquidation value at May 31, 2017 and May 31, 2016, of $15,729,669 and $14,472,840, respectively. | 15,729,669 | 14,472,840 |
Mandatorily Redeemable Preferred A Stock [Member] | ||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||
Mandatorily redeemable convertible Series A Preferred Stock, $.0001 par value per share; 1 million shares authorized; 1,549 shares issued and outstanding at May 31, 2017 and May 31, 2016, respectively; stated liquidation value of $1,000 per share; aggregate liquidation value at May 31, 2017 and May 31, 2016, of $2,247,290 and $2,159,602, respectively. | $ 2,247,290 | $ 2,247,290 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) | May 31, 2017 | May 31, 2016 |
Amorized cost Bonds and mortgaged-back securities | $ 33,634,403 | $ 7,170,789 |
Amorized cost Equity investments | 2,465,221 | 1,550,217 |
Amortized Costs, Market Value | 0 | 5,157,936 |
Short-term investments held before restrictions | 1,857,601 | |
Allowance for doubtful accounts | 15,053 | 40,658 |
Accumulated depreciationFurniture, automobile, and equipment | $ 83,845 | $ 112,627 |
Common stock Shares, par value | $ 0.0001 | $ 0.0001 |
Common stock Shares authorized | 490,000,000 | 490,000,000 |
Common stock Shares issued | 385,892,203 | 385,092,203 |
Common stock Shares outstanding | 385,892,203 | 385,092,203 |
Series A Preferred Stock [Member] | ||
Preferred stock Shares, par value | $ .0001 | $ .0001 |
Preferred stock Shares,authorized | 1,000,000 | 1,000,000 |
Preferred stock Shares,issued | 1,126 | 1,126 |
Preferred stock Shares,outstanding | 1,126 | 1,126 |
Preferred Stock Liquidation Preference, per Share | $ 1,000 | $ 1,000 |
Preferred Stock Liquidation Value | $ 1,738,792 | $ 1,670,945 |
Series B Preferred Stock [Member] | ||
Preferred stock Shares, par value | $ .0001 | $ .0001 |
Preferred stock Shares,authorized | 3,136 | 3,136 |
Preferred stock Shares,issued | 2,817 | 2,817 |
Preferred stock Shares,outstanding | 2,817 | 2,817 |
Preferred Stock Liquidation Preference, per Share | $ 1,000 | $ 1,000 |
Preferred Stock Liquidation Value | $ 6,853,251 | $ 6,331,152 |
Series C Preferred Stock [Member] | ||
Preferred stock Shares, par value | $ .0001 | $ .0001 |
Preferred stock Shares,authorized | 10,000 | 10,000 |
Preferred stock Shares,issued | 6,805 | 6,805 |
Preferred stock Shares,outstanding | 6,805 | 6,805 |
Preferred Stock Liquidation Value | $ 15,729,669 | $ 14,472,840 |
Preferred stock,Accrued Dividends | $ 9,698,738 | $ 8,441,909 |
Preferred Stock FSC [Member] | ||
Preferred stock Shares, par value | $ 1,000 | $ 1,000 |
Preferred stock Shares,authorized | 50,000 | 50,000 |
Preferred stock Shares,issued | 8,000 | 8,000 |
Preferred stock Shares,outstanding | 8,000 | 8,000 |
Mandatorily Redeemable Preferred A Stock [Member] | ||
Preferred stock Shares, par value | $ .0001 | $ .0001 |
Preferred stock Shares,authorized | 1,000,000 | 1,000,000 |
Preferred stock Shares,issued | 1,549 | 1,549 |
Preferred stock Shares,outstanding | 1,549 | 1,549 |
Preferred Stock Liquidation Preference, per Share | $ 1,000 | $ 1,000 |
Preferred Stock Liquidation Value | $ 2,247,290 | $ 2,159,602 |
Consolidated Condensed Statemen
Consolidated Condensed Statements of Operations - USD ($) | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Revenues | ||
Investment advisory services | $ 81,918 | $ 109,194 |
Insurance premiums and commissions | 1,886,040 | 1,123,898 |
Net investment income (losses) | 493,829 | (215,382) |
Net realized investment gains (losses) | 138,220 | (79,060) |
Other income | 160,493 | 316,267 |
Interest and dividend income | 108,816 | 80,912 |
Total Revenues | 2,869,316 | 1,335,829 |
Operating Expenses: | ||
Provision for policy losses | 579,359 | 179,335 |
Insurance policy acquisition costs | 590,260 | 284,127 |
General and administrative | 1,187,379 | 1,442,606 |
Depreciation | 4,598 | 1,251 |
Total Operating Expenses | 2,361,596 | 1,907,319 |
Income (Loss) from Operations | 507,720 | (571,490) |
Gain on debt extinguishment | 0 | 1,919,532 |
Settlement Expense | (350,000) | 0 |
Accrued dividends of Series A Mandatorily Redeemable Preferred Stock | (67,847) | (65,374) |
Accrued dividends and accretion of Series B Mandatorily Redeemable Preferred Stock | (522,099) | (483,596) |
Interest expense | (574,971) | (915,098) |
Net Loss | (1,007,197) | (116,025) |
Accretion of Mandatorily Redeemable Convertible Preferred Stock, including accrued dividends | (87,688) | (84,492) |
Accrued dividends on Series C Preferred Stock equity | (1,256,829) | (1,164,143) |
Net loss attributable to common stockholders | (2,351,714) | (1,364,661) |
Net loss Attributable to Noncontrolling Interest | (262,771) | 92,131 |
Net Loss Attributable to JFGI Stockholders | $ (2,351,714) | $ (1,364,661) |
Basic and Dilutive Net Income (Loss) Per Share: | ||
Net Income (Loss) Per Share | $ (0.01) | $ 0 |
Weighted-Average Shares Outstanding | 385,197,135 | 381,912,411 |
Consolidated Condensed Stateme5
Consolidated Condensed Statements of Comprehensive Income (Loss) - USD ($) | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Consolidated Condensed Statements Of Comprehensive Income Loss | ||
Net (loss) attributable to common stockholders | $ (2,351,714) | $ (1,364,661) |
Other comprehensive income (loss): | ||
Unrealized loss of available-for-sale investments arising during period | (34,548) | (28,359) |
Reclassification adjustment for realized loss included in net loss | (93,649) | 4,641 |
Unrealized loss attributable to available-for-sale investments recognized in other comprehensive income (loss) | (128,197) | (23,718) |
Comprehensive Loss | $ (2,479,911) | $ (1,388,379) |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net Loss | $ (1,007,197) | $ (116,026) |
Adjustments to reconcile net loss to net cash provided by operating activities: | ||
(Increase) decrease in short-term investments | (1,659,849) | 1,414,868 |
Unearned premium | 455,888 | (106,606) |
Stock issued in connection with financing arrangements | 2,108 | 12,987 |
Stock issued in connection with dividend arrangements | 0 | 37,184 |
Accrual of Series A preferred stock dividends | 67,847 | 65,374 |
Accrual of Series B preferred stock dividends and accretion | 522,098 | 483,596 |
Provision for loss reserves | 590,142 | (322,256) |
Amortization of premium | 158,488 | 96,216 |
Depreciation | 4,598 | 1,251 |
Accretion of discount | (16,620) | 0 |
Proceeds from funds held in trust | 19,858,620 | 0 |
Realized (gain) loss on sale of securities | (138,220) | 79,061 |
Gain on extinguishment of debt | 0 | (1,919,532) |
Change in operating assets and liabilities: | ||
Other assets | (2,163) | (67) |
Premium and other receivables | (353,515) | 566,273 |
Investment income due and accrued | (110,809) | (11,353) |
Deferred policy acquisition costs | (195,726) | (16,906) |
Related party accounts payable | (400) | (47,886) |
Accounts payable | (1,388) | 65,844 |
Accrued expenses and other liabilities | 1,198,302 | (246,738) |
Net cash flows from operating activities | 19,372,204 | 35,284 |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Costs of bonds acquired | (47,146,079) | (1,775,947) |
Costs of mortgaged-backed securities acquired | (1,864,276) | 0 |
Purchase of equity securities | (2,667,650) | (1,899,637) |
Redemption of bonds upon call or maturity | 17,000,000 | 0 |
Proceeds from sale of securities available for sale | 6,614,202 | 1,910,797 |
Repayment of mortgage-backed securities | 681,537 | 631,121 |
(Purchase)/Collection - accrued interest | (125,201) | 3,980 |
Purchase of furniture and equipment | (40,610) | (548) |
Net cash flows used in investing activities | (27,548,077) | (1,130,234) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Proceeds from related party debt | 599,452 | 1,957,658 |
Repayment of related party debt | (1,011,383) | (971,207) |
Proceeds from borrowings | 195,060 | 1,171,192 |
Repayment of borrowings | (181,643) | (2,319,269) |
Payment of lendings | (200,000) | (500,000) |
Payment of related party lendings | 0 | (1,250,000) |
Proceeds from repayment of lendings | 196,146 | 139,329 |
Proceeds from repayment of related party lendings | 160,754 | 128,706 |
Proceeds from sale of subsidiary common stock | 500,000 | 1,000,000 |
Proceeds from sale of subsidiary preferred stock | 8,000,000 | 0 |
Proceeds from deferred sale of subsidiary stock | 0 | 1,500,000 |
Net cash flows from (used in) financing activities | 8,258,386 | 856,409 |
NET INCREASE (DECREASE) IN CASH | 82,513 | (238,541) |
CASH AT BEGINNING OF PERIOD | 465,810 | 704,351 |
CASH AT END OF PERIOD | 548,323 | 465,810 |
SUPPLEMENTAL DISCLOSURES | ||
Interest paid | 918,048 | 918,048 |
Income taxes paid | 0 | 0 |
Non-cash investing and financing transaction: | ||
Additional consideration paid for issuance of debt | $ 12,987 | $ 12,987 |
Consolidated Statement of Serie
Consolidated Statement of Series A Redeemable Preferred Stock and Stockholders' Equity (Deficit) - USD ($) | Series A Mandatorily Redeemable Preferred Stock | Common Stock Amount | Additional Paid-In Capital | Preferred stock of Subsidiaries | Series C Preferred Stock | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | JFGI Sharesholder's Interest | Noncontrolling Interest | Total |
Beginning Balance at May. 31, 2015 | $ 2,075,110 | $ 36,357 | $ 4,199,387 | $ 13,308,697 | $ (31,886,882) | $ 21,413 | $ (14,321,028) | $ (13,521,028) | ||
Beginning Balance, Shares at May. 31, 2015 | 1,549 | 363,574,218 | 6,805 | |||||||
Issuance of common stock as compensation for services, Amount | ||||||||||
Issuance of common stock as additional consideration in financing arrangements, Shares | 1,634 | 48,538 | 50,172 | 50,172 | ||||||
Exercise of warrants | ||||||||||
Accretion of Series A mandatorily redeemable convertible preferred stock | ||||||||||
Accrued dividends of Series A mandatorily redeemable convertible preferred stock | 84,491 | (84,491) | (84,491) | (84,491) | ||||||
Accrued dividends of Series C equity preferred stock | 1,164,143 | (1,164,143) | ||||||||
Exchange of Series C Preferred Stock for Series B Mandatorily Redeemable Convertible Preferred Stock | ||||||||||
Reclassification of Series A from temporary equity to liabilities | ||||||||||
Sale of noncontrolling interest of subsidiary | 367,449 | 367,449 | 632,551 | 1,000,000 | ||||||
Common stock option expense | ||||||||||
Unrealized gain on available for sale securities | (23,718) | (23,718) | (23,718) | |||||||
Net (loss) | (23,895) | (23,895) | (92,131) | (116,025) | ||||||
Ending Balance at May. 31, 2016 | $ 2,159,602 | $ 379,991 | 4,615,374 | $ 14,472,840 | (33,159,411) | (2,305) | (14,035,511) | 540,420 | (13,495,091) | |
Ending Balance, Shares at May. 31, 2016 | 1,549 | 379,908,267 | 6,805 | |||||||
Issuance of common stock as compensation for services, Amount | ||||||||||
Issuance of common stock as additional consideration in financing arrangements | $ 800,000 | |||||||||
Issuance of common stock as additional consideration in financing arrangements, Shares | 80 | 2,029 | 2,109 | 2,109 | ||||||
Exercise of warrants | ||||||||||
Accretion of Series A mandatorily redeemable convertible preferred stock | ||||||||||
Accrued dividends of Series A mandatorily redeemable convertible preferred stock | 87,689 | (87,689) | (87,689) | (87,689) | ||||||
Accrued dividends of Series C equity preferred stock | 1,256,828 | (1,256,828) | ||||||||
Exchange of Series C Preferred Stock for Series B Mandatorily Redeemable Convertible Preferred Stock | ||||||||||
Reclassification of Series A from temporary equity to liabilities | ||||||||||
Sale of noncontrolling interest of subsidiary | $ 613,925 | $ 613,925 | $ 1,386,075 | $ 2,000,000 | ||||||
Sale of preferred stock of subsidiaries | 8,000,000 | 8,000,000 | 8,000,000 | |||||||
Common stock option expense | ||||||||||
Unrealized gain on available for sale securities | (128,198) | (128,198) | (128,198) | |||||||
Net (loss) | (1,269,968) | (1,269,968) | 262,771 | (1,007,197) | ||||||
Ending Balance at May. 31, 2017 | $ 2,247,292 | $ 38,071 | $ 5,231,328 | $ 15,729,668 | $ (35,773,896) | $ (130,503) | $ (6,905,332) | $ 2,189,266 | $ (4,716,066) | |
Ending Balance, Shares at May. 31, 2017 | 1,549 | 380,708,267 | 6,805 |
A. Organization and Business
A. Organization and Business | 12 Months Ended |
May 31, 2017 | |
Organization And Business | |
Organization and Business | Note A – Organization and Business Organization and Nature of Business Jacobs Financial Group, Inc. (the “Company” or “JFG”), formerly NELX, Inc., was incorporated in Kansas on March 25, 1983. In 2001, the Company acquired all the outstanding stock of two corporations located in Charleston, West Virginia: Jacobs & Company (“Jacobs”) and FS Investments, Inc. (“FSI”). Jacobs is a registered investment advisory firm that derives its revenue from asset-based investment advisory fees. FSI, through its wholly-owned subsidiary Triangle Surety Agency, Inc. (“Triangle”), is engaged in the business of placing surety bonds with insurance companies for clients engaged in regulated industries, such as the extraction of coal, oil and gas. Triangle receives commission income from the placement of these bonds and is licensed in five states primarily in the eastern United States. On December 30, 2005, the Company acquired all of the outstanding stock of West Virginia Fire & Casualty Company (“WVFCC”), an insurance company licensed to engage in business in West Virginia, Ohio and Indiana. The acquisition of WVFCC consisted of the purchase of marketable investments and insurance licenses and did not include any existing policies or customer base as the insurance lines of business offered by WVFCC were not insurance lines that the Company intended to pursue. Following the acquisition, the name of WVFCC was changed to First Surety Corporation (“FSC”). FSC receives insurance premium income in connection with the issuance of surety bonds. The Company and its subsidiaries are subject to the business risks inherent in the financial services industry. Liquidity, Financial Resources and Substantial Doubt about Going Concern These consolidated financial statements are presented on the basis that the Company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. Presently, the Company has insufficient liquidity, financial resources, is in default with certain loan and preferred stock agreements, and has suffered significant recurring losses from operations. Losses are expected to continue until the Company develops a more substantial book of business. While improvement is anticipated as the Company’s business plan is implemented, other conditions, such as restrictions on the use of FSC’s assets (See Note C), and the Company’s significant deficiency in working capital and stockholders’ equity raise substantial doubt about the Company’s ability to continue as a going concern. Management intends to improve cash flow through the implementation of its business plan. Additionally, management continues to seek to raise additional funds for operations through private placements of stock, other long-term or permanent financing, or short-term borrowings. However, the Company cannot be certain that it will be able to continue to obtain adequate funding in order to reasonably predict whether it will be able to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. Principles of Consolidation The consolidated financial statements include the accounts of Jacobs Financial Group, Inc. and its majority owned subsidiaries, after the elimination of intercompany transactions. Non-Controlling Interest First Surety Corporation, a subsidiary of the Jacobs Financial Group, Inc. has a non-controlling ownership interest. The Company’s board of directors has authorized the sale of Units (5% per Unit), which, if completed, would include forty-nine percent (49%) of the outstanding stock of FSC. As of May 31, 2017, the Company still had ownership of 70% of First Surety Corporation. For further discussion of these Units, see Note H. Summarized balance sheet and income statement amounts for First Surety Corporation are as follows; FSC Balance Sheet As of May 31,2017 Total Assets $ 39,599,254 Total Liabilities 25,930,920 Total Equity 13,668,334 Total Liabilities and Equity $ 39,599,254 FSC Income Statement Year Ended May 31,2017 Total Revenue $ 2,459,801 Total Expenses (1,828,415 ) Net Income $ 631,386 Cash and Short Term Investments The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests. Use of Estimates Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates are loss reserves, valuation of investments, and the valuation of deferred tax assets. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. Revenue and Expense Recognition Fees for investment advisory services are based on an agreed percentage of the value of client assets under management and are accrued monthly based on the market value of client assets. The Company accounts for its surety bond issuances as short duration contracts. Surety premiums are recorded as receivables when due and are earned pro rata over the term of the policies of generally one year, subject to annual renewal. The reserve for unearned premiums represents the deferred revenue portion of premiums written relating to the unexpired terms of coverage. The reserve for unearned premium is determined using the monthly pro rata method. Advance premiums represent renewal premiums paid in advance of the effective renewal date. Agency commissions for surety bond services are based on a percentage of premiums charged for bonds placed with insurance companies, and are recorded upon issuance or effective renewal date of the bonds. No significant continuing services subsequent to the issuance or renewal of surety bonds are required. Policy acquisition costs include costs that vary with and are primarily related to the acquisition of new business. Such costs generally include commissions, underwriting expenses, and premium taxes and are deferred and amortized over the period in which the related premiums are earned. The deferred policy acquisition cost assets are reviewed for recoverability based on the profitability of the underlying surety policy. Investment income is not considered in the determination of recoverability of deferred policy acquisition costs. Investments Debt securities are designated at purchase as held-to-maturity, trading or available for sale. Held-to-maturity debt securities are carried at amortized cost where the Company has the ability and intent to hold these securities until maturity. Premiums and discounts arising from the purchase of debt securities are treated as yield adjustments over the estimated lives or call date, if applicable. Debt and equity securities that the Company may not have a positive intent to hold until maturity and not classified as trading, are considered to be available for sale and carried at fair value. Management has determined it may dispose of securities prior to their scheduled maturity due to changes in interest rates, prepayments, tax and credit considerations, liquidity or regulatory capital requirements, or other similar factors. These securities are reported at fair value, with unrealized gains and losses, net of deferred income taxes, reported in stockholders’ equity as a separate component of accumulated other comprehensive income. Debt and equity securities that are bought and held principally for sale in the near future are classified as trading securities and are carried at fair value, with changes in fair value being recorded in current operations. Short-term investments consist primarily of debt securities having maturities of one year or less at date of purchase, and other similar investments that have immediate availability. An investment is considered impaired when its fair value is less than its cost or amortized cost, as applicable. When an investment is impaired, a determination is made as to whether the impairment is other than temporary (“OTTI”). Factors considered in identifying OTTI include: 1) for debt securities, whether the Company intends to sell the investment or whether it is more likely than not that the Company will be required to sell the security prior to the anticipated recovery in value; 2) the likelihood of the recoverability of principal and interest for debt securities (i.e., whether there is a credit loss) or cost for equity securities; 3) the length of time and extent to which the fair value has been less than amortized cost for debt securities or carrying value for equity securities; and 4) the financial condition, near-term and long-term prospects for the issuer, including the relevant industry conditions and trends, and implications of rating agency actions and offering prices. Realized gains and losses are determined by specific identification of the security sold. Interest income with respect to fixed maturity securities is accrued as earned. Dividend income is generally recognized when receivable. Derivatives The Company uses derivatives in the form of covered call options sold to generate additional income and provide limited downside protection in the event of a market correction. These transactions expose the Company to potential market risk for which the Company receives a premium up front and the Company realizes the option premium received as income. The market risk relates to the requirement to deliver the underlying security to the purchaser of the call within a definite time at an agreed market price regardless of the then current market price of the security. As a result the Company takes the risk that it may be required to sell the security at the strike price, which could be a price less than the then market price. Should the security decline in market price over the holding period of the call option, the Company can lessen or mitigate the risk of loss with a closing transaction for the covered call and sale of the underlying security. The Company invests in large capitalized US securities traded on major US exchanges and writes standardized covered calls only against these positions (covered calls), which are openly traded on major US exchanges. The use of such underlying securities and standardized calls lessens the credit risk to the furthest extent possible. The Company is not exposed to significant cash requirements through the use of covered calls in that it sells a call for a premium and may use these proceeds to enter a closing transaction for the call at a later date. Allowance for uncollectible premium and other receivables The majority of the Company’s fee revenue is generated by services provided to companies and individuals throughout the Eastern United States. Management evaluates the need for a reserve for the amount of related receivables that may be uncollectible, based on historical collection activity adjusted for current conditions. Premium and other receivables are charged-off when deemed uncollectible. Based on this evaluation management has established an allowance for estimated uncollectible accounts of $15,053 and $40,658 for fiscal 2017 and 2016, respectfully. Long-lived Assets The Company evaluates long-lived assets for impairment annually, or whenever events or changes in circumstances indicate that the assets may not be recoverable. Impairment is measured by discounting estimated future cash flows expected to be generated, and comparing this amount to the carrying value of the asset. Cash flows are calculated utilizing forecasts and projections and estimated lives of the assets being analyzed. Should actual results differ from those forecasted and projected the Company may be subject to future impairment charges related to recovery of these long-lived assets. During the periods presented management determined impairment had not occurred. Furniture and Equipment Furniture and equipment is recorded at cost. Maintenance and repairs are charged to operations when incurred. When property and equipment are sold or disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. The cost of property and equipment is depreciated over the estimated useful lives of the related assets, ranging from three to seven years, using the straight-line or double-declining balance methods, which approximates estimated economic depreciation. Reserve for Losses and Loss Expenses Losses and loss adjustment expenses represent management’s best estimate of the ultimate net cost of all reported and unreported losses incurred. Reserves for unpaid losses and loss adjustment expenses are estimated using industry averages, however, will include individual case-basis valuations in the event claims are received. These estimates and methods of establishing reserves are continually reviewed and updated. Stock-based Compensation The fair value of stock options is estimated at the grant date using the Black Scholes Option Pricing Model. This model requires the input of a number of assumptions, including expected volatility and dividend yields, expected stock price, risk-free interest rates, and an expected life of the options. Although the assumptions used reflect management’s best estimate, they involve inherent uncertainties based on market conditions generally outside the control of the Company. As of and for the periods presented there were no stock options outstanding. Income Taxes The Company currently has net operating loss (“NOL”) carry-forwards that can be utilized to offset future income for federal and state tax purposes. These NOLs represent a significant deferred tax asset. However, the Company has recorded a valuation allowance against this deferred tax asset as it has determined that it is more likely than not that it will not be able to fully utilize the NOLs. Should assumptions regarding the utilization of these NOLs change, the Company may reduce some or all of this valuation allowance, which would result in the recording of a deferred income tax benefit. The Company follows a more-likely-than-not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return. If taxing authorities were to disallow any tax positions taken by the Company, the additional income taxes, if any, would be imposed on the Company. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. However, no interest or penalties have been assessed as of May 31, 2017 or 2016. On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act, among other things, reduces the U. S. federal income tax rate from 35 percent to 21 percent, effective January 1, 2018. The Company has made a reasonable estimate of the effects of the Tax Act on existing deferred tax balances. These amounts are provisional and subject to change. The most significant impact of the legislation for the Company was a $2,050,000 reduction of the value of the Company’s net deferred tax assets (which represent future tax benefits). Earnings (Loss) Per Share Basic earnings (loss) per share of common stock are computed using the weighted average number of shares outstanding during each period. Diluted earnings per share are computed on the basis of the average number of common shares outstanding plus the dilutive effect of convertible debt, stock options and warrants. In periods of net loss, there are no diluted earnings per share since the result would be anti-dilutive. |
B. Newly Adopted and Recent Acc
B. Newly Adopted and Recent Accounting Pronoucments | 12 Months Ended |
May 31, 2017 | |
Newly Adopted And Recent Accounting Pronoucments | |
Newly Adopted and Recent Accounting Pronoucments | Note B – Newly Adopted and Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40) ( In January 2016, the FASB issued ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10)”, which updated the accounting guidance related to the recognition and measurement of financial assets and financial liabilities. The updated accounting guidance, among other things, requires that all nonconsolidated equity investments, except those accounted for under the equity method, be measured at fair value and that the changes in fair value be recognized in net income. The Update will be effective for the Company’s fiscal 2019 annual and interim financial statements. The updated accounting guidance requires, with certain exceptions, a cumulative effect adjustment to beginning retained earnings when the guidance is adopted. The Company is currently in the process of evaluating the impact of adoption of the new rules. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. The guidance is intended to reduce the diversity in practice as to how certain cash receipts and cash payments are presented and classified in the statement of cash flows by providing guidance for several specific cash flow issues. In addition, in November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. The amendment requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Update will be effective for the Company’s fiscal 2020 annual financial statements and interim periods thereafter. In March 2016, the FASB issued ASU 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships”, which clarifies that a change in the counterparty to a derivative contract, in and of itself, does not require the designation of a hedging relationship. The new standard which can be adopted prospectively or on a modified retrospective basis, is effective for the Company’s fiscal 2019 annual and interim financial statements. The Company does not expect the adoption of the new accounting rules to have a material impact on the Company’s financial condition, results of operations and cash flows. Also in March 2016, the FASB issued ASU 2016-06, “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments”, which clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. The new standard, which should be applied on a modified prospective basis is effective for the Company’s 2019 annual financial statements and interim periods thereafter. In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The update provides that when substantially all the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. The new rules will be effective for the Company’s fiscal 2021 financial statements and interim periods thereafter. In February 2018, the FASB issued ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, to address a specific consequence of the Tax Cuts and Jobs Act (TCJA) by allowing a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA’s reduction of the U.S. federal corporate income tax rate. The ASU is effective for all entities for the Company’s fiscal 2020 financial statements, with early adoption permitted, and is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the TCJA is recognized. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. The new guidance is effective for the Company’s fiscal 2020 financial statements. The Company is currently evaluating the impact that the adoption of this guidance will have on its financial statements. In February 2016, the FASB issued ASU 2016-02, which amends the FASB Accounting Standards Codification and creates Topic 842, “Leases.” The new topic supersedes Topic 840, “Leases,” and increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosures of key information about leasing arrangements. The guidance is effective for the Company’s fiscal 2020 financial statements. ASU 2016-02 mandates a modified retrospective transition method. The Company is currently assessing the impact this guidance will have on its financial statements. Management has assessed the potential impact of recently issued, but not yet effective accounting standards and, except as noted, has determined that the provisions are either not applicable to the Company, or are not anticipated to have a material impact on the consolidated financial statements. |
C. Investments
C. Investments | 12 Months Ended |
May 31, 2017 | |
Investments | |
Investments | Note C – Investments The Company held the following investments, by security type, that were classified as available-for-sale and carried at fair value at May 31, 2017: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value State and municipal securities $ 17,893,683 $ 71,906 $ 215,421 $ 17,750,168 Bond – US Treasuries 11,479,990 — 2,083 11,477,907 Equity securities 2,569,438 104,041 146,775 2,526,704 Derivatives (104,217 ) (9,745 ) (9,734 ) (104,228 ) Mortgage backed securities 4,260,730 68,904 11,064 4,318,570 $ 36,099,624 $ 235,106 $ 365,609 $ 35,969,121 The Company held the following investments, by security type, that have been classified as available-for-sale and carried at fair value at May 31, 2016: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses State and municipal securities $ 4,013,256 $ 64,789 $ 58,217 $ 4,019,828 Equity securities 1,628,713 91,339 155,299 1,564,753 Derivatives (78,497 ) (7,329 ) (9,513 ) (76,313 ) Mortgage backed securities 3,157,534 67,689 14,790 3,210,433 $ 8,721.006 $ 216,488 $ 218,793 $ 8,718,701 There are no securities classified as held to maturity at May 31, 2017 or May 31, 2016. Invested assets are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain of these invested assets and the level of uncertainty related to changes in the value of these assets, it is possible that changes in risks in the near term may significantly affect the amounts reported in the Consolidated Balance Sheets and Statements of Operations. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following fair value hierarchy in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable: o Level 1 – Quoted prices for identical instruments in active markets. o Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets. o Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are unobservable. Fair values are provided by the Company’s independent investment custodians that utilize third-party quotation services for the valuation of the fixed-income investment securities and money-market funds held. The Company’s investment custodians are large money-center banks. The Company’s equity investment is valued using quoted market prices. The following section describes the valuation methodologies used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instrument is generally classified. Fixed Income Securities Securities valued using Level 1 inputs include highly liquid government bonds for which quoted market prices are available. Securities using Level 2 inputs are valued using pricing for similar securities, recently executed transactions, cash flow models with yield curves and other pricing models utilizing observable inputs. Most fixed income securities are valued using Level 2 inputs. Level 2 includes corporate bonds, municipal bonds, asset-backed securities and mortgage pass-through securities. Equity Securities Level 1 includes publicly traded securities valued using quoted market prices. Short-Term Investments The valuation of securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds and U.S. Treasury bills. Level 2 includes commercial paper, for which all significant inputs are observable. Assets measured at fair value on a recurring basis are summarized below: May 31, 2017 Fair Value Measurements Using Level 1 Level 2 Level 3 Assets At Fair Value Fixed income securities at fair value $ — $ 33,546,645 $ — $ 33,546,645 Equity securities at fair value (includes derivatives) 2,422,476 — — 2,422,476 Short-term investments at fair value 1,857,601 — — 1,857,601 Total Assets $ 4,280,077 $ 33,546,645 $ — $ 37,826,722 May 31, 2016 Fair Value Measurements Using Level 1 Level 2 Level 3 Assets At Fair Value Fixed income securities at fair value $ — $ 7,230,261 $ — $ 7,230,261 Equity securities at fair value (includes derivatives) 1,488,440 — — 1,488,440 Short-term investments at fair value 197,752 — — 197,752 Total Assets $ 1,686,192 $ 7,230,261 $ — $ 8,916,453 The Company had no assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at either May 31, 2017 or at May 31, 2016. At May 31, 2017, the Company’s insurance subsidiary had cash, securities and short-term investments held as collateral for their bonding program in the amount of $21,926,872. In connection with regulatory approval of the Company’s acquisition of its insurance subsidiary, certain restrictions were imposed on the ability of the Company to withdraw funds from FSC without prior approval of the state Insurance Commissioner. Accordingly, investments and cash in the amount of $38,374,571 and $9,384,909 as of May 31, 2017 and 2016, respectively, are restricted to the use of FSC. At May 31, 2016, the Company’s insurance subsidiary had securities and short-term investment with a fair value of $1,153,324 on deposit with the State insurance department to satisfy regulatory requirements. Principal repayments on U.S. government agency mortgage-backed securities held by the Company as of May 31, 2017 are estimated as follows: Amortized Cost Fair Value Due in one year or less $ 725,940 $ 730,887 Due after one year through five years 2,179,769 2,225,209 Due after five years through ten years 958,413 964,40 Due after ten years 396,608 398,068 $ 4,260,730 $ 4,318,570 Estimated repayments are forecast based on varying prepayment speeds for each particular security held assuming that interest rates remain constant. Expected repayments will differ from actual repayments because borrowers of the underlying mortgages have a right to prepay obligations. An analysis of net investment income follows: 2017 2016 Bonds – fixed maturities $ 242,266 $ 154,300 Mortgage-backed securities 108,236 113,654 Equity investments 64,398 38,910 Short-term investments 1,070 151 Other investment income (loss) 113,001 (485,479 ) Total investment income (loss) 528,971 (178,464 ) Investment expense 35,142 36,918 Net investment income $ 493,829 $ (215,382 ) The unrealized appreciation (depreciation) of investments were as follows: 2017 2016 Bonds – US Treasury $ (2,082 ) $ — Bonds-fixed maturities (150,087 ) 46,790 Mortgage-backed securities 4,940 (32,089 ) Equity securities 19,032 (38,419 ) Increase (decrease) in unrealized appreciation $ (128,197 ) $ (23,718 ) Gains and losses are calculated based on sales proceeds received less the cost of the security sold, which is determined by specific identification for each investment. The gross gains and gross losses realized on available-for-sale securities were as follows: Gross Proceeds Gross Realized Gains Gross Realized Losses 2017 Bonds – US Treasury $ 17,000,000 $ — $ — Bonds-fixed maturities 4,778,067 79,561 24,831 Mortgage-backed securities — — — Equity securities 1,015,216 103,532 15,762 Derivatives (equity securities) 848,325 193,123 197,403 Total $ 23,641,608 $ 376,216 $ 237,99 2016 Bonds-fixed maturities $ 858,870 $ 6,346 $ 9,253 Mortgage-backed securities — — — Equity securities 391,758 8,965 36,135 Derivatives (equity securities) 598,984 113,407 162,390 Total $ 1,849,612 $ 128,718 $ 207,778 The following table summarizes the gross unrealized losses and fair value on investment securities aggregated by major investment category and length of time that individual securities have been in a continuous loss position at May 31, 2017 and May 31, 2016. Less than 12 Months 12 Months or More Total Cost (a) Unrealized Losses Cost (a) Unrealized Losses Fair Value Unrealized Losses 2017 Equity securities $ 1,004,585 $ 60,327 $ 301,525 $ 86,449 $ 1,159,335 $ 146,775 Bonds- Fixed Maturities 9,185,478 152,367 1,344,509 62,774 10,314,847 215,141 Mortgage-backed securities 1,686,199 10,291 134,742 773 1,820,941 11,064 Total $ 11,876,262 $ 222,985 $ 1,780,776 $ 149,995 $ 13,295,123 $ 372,980 2016 Equity securities $ 571,913 $ 80,340 $ 244,664 $ 74,960 $ 661,277 $ 155,300 Bonds- Fixed Maturities 493,941 10,003 2,004,819 48,214 2,440,543 58,217 Mortgage-backed securities 894,532 5,118 535,416 9,672 1,415,158 14,790 Total $ 1,960,386 $ 95,461 $ 2,784,899 $ 132,846 $ 4,516,978 $ 228,307 (a) For bonds-fixed maturities and mortgage-backed securities, represents amortized costs. As of May 31, 2017, the Company held twenty-two mortgage-backed securities with gross unrealized losses of $11,064, six of which have been in a continuous loss position for more than 12 months. These securities consist of fixed-rate securities issued by Government National Mortgage Association (GNMA) that are sensitive to movements in market interest rates. As of May 31, 2017, the Company held one hundred two fixed maturity bonds with gross unrealized losses of $215,420, six of which have been in a continuous loss position for more than 12 months. As of May 31, 2017, the Company held twenty-one equity security investments with gross unrealized losses of $146,775, seven of which have been in a continuous loss position for more than 12 months. These securities consist of common stock whose fair value is sensitive to movements in market interest rates. |
D. Deferred Policy Acquisition
D. Deferred Policy Acquisition Costs | 12 Months Ended |
May 31, 2017 | |
Deferred Policy Acquisition Costs | |
Deferred Policy Acquisition Costs | Note D-Deferred Policy Acquisition Costs The following reflects the policy acquisition costs deferred for amortization against future income and the related amortization charged to operations. 2017 2016 Balance at beginning of year $ 171,883 $ 154,978 Acquisition costs incurred 785,986 301,032 Amortization charged to operations (590,260 ) (284,127 ) Total $ 367,609 $ 171,883 |
E. Other Assets
E. Other Assets | 12 Months Ended |
May 31, 2017 | |
Other Assets | |
Other Assets | Note E – Other Assets Included in other assets as of May 31, 2017 and May 31, 2016 are $16,780 and $14,617 of prepaid expenses and deposits. |
F. Intangibles
F. Intangibles | 12 Months Ended |
May 31, 2017 | |
Intangibles | |
Intangibles | Note F – Intangibles As the result of the acquisition of FSC on December 30, 2005, in exchange for the purchase price of $2,900,000, the Company received cash and investments held by FSC with a fair value of $2,750,000, with the difference of $150,000 being attributed to the property and casualty licenses of FSC in the states of West Virginia, Ohio and Indiana. Such licenses have indefinite lives and are evaluated annually, or more frequently if circumstances indicate that a possible impairment has occurred, for recoverability and possible impairment loss. No impairment has been recorded in fiscal years ended May 31, 2017 and 2016. |
G. Reserve for Losses and Loss
G. Reserve for Losses and Loss Expense | 12 Months Ended |
May 31, 2017 | |
Reserve For Losses And Loss Expense | |
Reserve for Losses and Loss Expense | Note G - Reserve for Losses and Loss Expense Reserves for unpaid losses and loss adjustment expenses are estimated based primarily on management’s judgment as the Company has incurred limited losses since its inception and available industry data is also extremely limited. In the event of the Company receiving a claim it will use individual case basis estimates including all estimated future expenses to settle such claims. As of May 31, 2017, the Company’s insurance subsidiary, FSC, is only licensed to write surety in West Virginia and Ohio and has focused its primary efforts towards coal permit reclamation bonds while also providing other miscellaneous surety bonds, most of which are partially collateralized by investment accounts that are managed by Jacobs & Company. Reclamation of land that has been disturbed by mining operations is highly regulated by federal and state agencies and the required bonds are generally long-term in nature with mining operations and reclamation work conducted in unison as the property is being mined. Additionally, no two principals or properties are alike due to varied company structures and unique geography and geology of each site. In underwriting such bonds, management develops, through consultation with professionals experienced in the specific field of work, estimates of costs to reclaim the properties subject of the permit(s) in accordance with those mining permit(s), in addition to other underwriting and financial risk considerations. FSC requires the principal to provide cash, or other acceptable collateral such as irrevocable letters of credit, in amounts determined through the underwriting process to reclaim the disturbed land and thus mitigate the exposure to significant loss. FSC maintains reinsurance agreements with various syndicates at Lloyd's of London. The reinsurance agreement is an excess of loss contract that protects FSC against losses up to certain limits over stipulated amounts. Each client’s cash is invested in investment collateral accounts managed by Jacobs utilizing investment strategies consistent with the state code governing investments of an insurance company. Inspections of mining activity and reclamation work are performed on a regular basis with initial cost estimates being updated periodically. Should the principal default in the obligation to reclaim the property in accordance with the mining permit, FSC would then use the funds held in the collateral account to reclaim the property or would be required to forfeit the face amount of the bond to the agency to which the bond is issued. Losses can occur if the costs of reclamation exceed estimates obtained at the time the bond was underwritten or upon subsequent re-evaluations, if sufficient collateral is not obtained and increased if necessary, or if collateral held has experienced a significant deterioration in value. FSC has experienced two claims for loss through May 31, 2017 as detailed below, and thus provisions for losses and loss adjustment expense have been based on management’s experience adjusted for other factors unique to the Company’s approach, and in consultation with actuaries experienced in the surety field. In August 2015, the Company paid a claim on a called bond in the amount of $550,000, of which $75,000 was paid using collateral of the principal. The remaining $475,000 has been established as a salvage reserve to be repaid with the assignment of proceeds from sales of stock and an assignment of a promissory note as additional collateral with total assigned values in excess of the salvage reserve. As of May 31, 2017, the Company had received $45,000 in recovered salvage on this claim. As of June 2018, the unrecovered balance of this salvage was $280,000, with full recovery expected in future. In February 2017, the Company paid a claim on a called bond in the amount of $752,400, of which $722,780 was paid using collateral of the principal. The remaining $29,620 was established as a salvage reserve to be repaid with periodic payments from the bond principal. As of May 31, 2017, the Company has received $3,000 in recovered salvage on this claim. For the years ended May 31, 2017 and 2016, the Company incurred loss adjustment expenses of $7,597 and $26,590, respectively, related to costs of engaging experts, attorney fees, and consultants for potential claims. These costs were charged against established case reserves or bulk reserves. As a result of an examination by the West Virginia Insurance Commissioner, a reserve strengthening in the form of an increase to the Loss Reserve was recorded in Fiscal 2015 and 2016 in the amounts of approximately $800,000 and $20,402. At May 31, 2017 and May 31, 2016, the reserve for losses and loss expenses consisted of: 2017 2016 Balance at beginning of year $ 2,491,479 $ 2,254,035 Incurred policy losses-current year 494,659 243,632 Incurred policy losses-prior year — 20,402 Paid policy losses – current year (7,597 ) (1,590 ) Paid policy losses-prior year — (25,000 ) Balance at end of year $ 2,978,541 $ 2,491,479 Reserve for anticipated salvage (456,620 ) (475,000 ) Ceded losses outstanding — (84,700 ) Balance at year end, net of reserve $ 2,521,921 1,931,779 |
H. Notes Payable
H. Notes Payable | 12 Months Ended |
May 31, 2017 | |
Notes Payable | |
Notes Payable | Note H – Notes Payable At May 31, 2017 and 2016, the Company had the following secured and unsecured notes payable to individuals: 2017 2016 Secured notes payable to individuals; interest rate fixed 8%; secured by 500 shares FSC stock (including $1,248,920 related party for 2017 and $1,387,573 for 2016) $ 4,169,072 $ 4,334,997 Secured notes payable to same individuals as above with same collateral; no interest; 235,784 235,000 Unsecured demand notes payable to individuals and others; no interest (including $75,000 related party in 2017 and $83,900 for 2016) 104,200 113,050 Unsecured demand notes payable to individuals and others; interest rate fixed 10% (including $75,000 to related party for 2017 and 2016) 1,548,372 1,506,859 Unsecured demand notes payable to individuals and others; interest rate fixed 12% 15,000 15,000 Unsecured demand note payable to individuals; interest rate fixed 14%; — 1,658 Secured demand note payable to individuals; interest rate fixed 10%; secured by accounts receivable for investment advisory fees 36,628 36,628 Unsecured demand note payable to individuals; interest rate fixed 2% (including $945,079 related party for 2017 and $785,000 for 2016) 1,045,079 885,000 Secured notes payable to individuals; interest rate fixed 10%; secured by shares FSC stock 249,250 249,250 Total $ 7,403,385 $ 7,377,442 During the year ended May 31, 2015, the Company borrowed $75,000 from a board member. Accrued related party interest of $5,000 is payable to this individual at May 31, 2017, with $0 and $3,068 interest expense for the years ended May 31,2017 and 2016, respectively. During the year ended May 31, 2016, an individual who holds secured notes payables from the Company, became a greater than 10% owner of outstanding common stock of the Company. During the year ended May 31, 2016, the Company borrowed additional money from this individual and entities controlled by this individual. Amounts owed to this individual (and the individual’s companies and relatives) at May 31, 2017 consisted of $1,020,079 in demand notes, $1,248,920 in notes payable secured by FSC stock, and $26,853 in accrued interest. All notes payables, with the exception of those secured by FSC stock are on demand terms and therefore current liabilities. On July 9, 2014 the Company completed a $4,500,000 financing. In effect, FSI, a subsidiary of the Company, borrowed the funds at 8.00% interest with principal repayments on a ten year schedule. Proceeds of the borrowing were applied (i) to purchase from certain bridge lenders, after waiving interest of approximately $1.6 million, i.e. 50.7%, ($1.775 million face amount) of the outstanding senior $3.5 million financing dating from 2008, together with the associated collateral, (ii) to pay in full delinquent tax liabilities owed to the Internal Revenue Service and State of West Virginia, (iii) to pay an outstanding judgment, and (iv) to pay certain other current liabilities. FSI therefore became a member of the Bridge Loan and notified the Collateral Agent for the group of its purchase and majority holding. The transaction restored majority control of FSC to the Company. On August 5, 2015 the Company completed a $1,600,000 transaction which resulted in its acquisition of the remaining 49.3% ($1.725 million face amount) senior promissory notes of the $3.5 million bridge loan financing dating from 2008, after waiving interest of approximately $1.8 million. Upon closing of the acquisition, the collateral securing the senior promissory notes, 1,000 shares (100%) of FSC and 1,000 shares (100%) of CMW, was released to the Company. This extinguishment of debt resulted in a gain from forgiven principal and interest in the amounts of $125,000 and $1,795,000, respectively for a total gain on debt extinguishment of approximately $1,920,000. The transaction was funded through sale in a private offering of investment units (Units) that consisted of 5.00% of the outstanding shares of FSC and 500,000 common shares of the Company. $1,600,000 was raised through a combination of cash, partial assignments of loans back to the Company that were debt of the Company and loans that are convertible into purchase of Units. The Registrant’s Board of Directors has authorized the sale of up to forty-nine percent (49%)of the outstanding stock of FSC. Scheduled maturities as of May 31, 2017 are as follows: Fiscal year 2017-2018 (including demand notes) $ 3,384,473 Fiscal year 2018-2019 (including demand notes) 208,387 Fiscal year 2019-2020 (including demand notes) 439,622 Fiscal year 2020-2021 (including demand notes) 512,495 Fiscal year 2021-2022 (including demand notes) 555,032 Thereafter 2,303,375 Total $ 7,403,384 |
I. Other Liabilities
I. Other Liabilities | 12 Months Ended |
May 31, 2017 | |
Other Liabilities | |
Other Liabilities | Note I - Other Liabilities As of May 31, 2017, the Company had accrued and withheld approximately $172,000 in Federal payroll taxes and approximately $32,000 in estimated penalties and interest, which are reflected in the financial statements as other liabilities and accrued expenses and professional fees payable. As of May 31, 2017, the Company had accrued and withheld approximately $73,000 in West Virginia payroll withholdings and approximately $17,000 in interest and penalties, which are reflected in the accompanying financial statements as other liabilities and accrued expenses and professional fees payable. As of May 31, 2016, the Company had accrued and withheld approximately $31,000 in Federal payroll taxes and approximately $31,000 in estimated penalties and interest, which are reflected in the financial statements as other liabilities and accrued expenses and professional fees payable. As of May 31, 2016, the Company had accrued and withheld approximately $44,000 in West Virginia payroll withholdings and approximately $7,000 in interest and penalties, which are reflected in the accompanying financial statements as other liabilities and accrued expenses and professional fees payable. As of May 31, 2017 and May 31, 2016, the Company held $21,926,872 and $2,068,192, respectively, in its cash and investment accounts as collateral for clients surety bonding programs. |
J. Preferred Stock
J. Preferred Stock | 12 Months Ended |
May 31, 2017 | |
Preferred Stock | |
Preferred Stock | Note J - Preferred Stock Redeemable Preferred Stock On December 30, 2005, through a private placement, the Company issued 350 shares of 4% Non-Voting Series A Preferred Stock (Series A Preferred Stock), along with 1,050,000 warrants for common shares of Company stock as additional consideration, for a cash investment in the amount of $350,000, in connection with the Company's acquisition of FSC. Holders of Series A Preferred Stock are entitled to participate in FSC's partially collateralized bonding programs, subject to continuing satisfaction of underwriting criteria, based upon the bonding capacity of FSC attributable to capital reserves of FSC established with the subscription proceeds (i.e., bonding capacity equal to ten times subscription proceeds) and for so long as the subscriber holds the Series A shares. Holders of the Series A Preferred Stock are entitled to receive, when and as declared by the board of directors, cumulative preferential cash dividends at a rate of four percent of the $1,000 liquidation preference per annum (equivalent to a fixed annual rate of $40 per share). The Series A Preferred Stock ranks senior to the Company's common stock and pari passu with the Company's Series B Preferred and Series C Preferred Stock with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company. The holder may redeem the Series A Preferred Stock on or after the seventh anniversary of the Issue Date, if the holder provides a written statement to the Company that it will no longer require surety bonds issued by the Company's insurance subsidiary (FSC) under its partially collateralized bonding programs and, if no such surety bonds are then outstanding, the Company, at the option of the holder, will redeem all or any portion of the Series A Preferred Stock of such holder at a price per share equal to the Series A Preferred Stock Issue Price plus all accrued and unpaid dividends with respect to the shares of the Series A Preferred Stock of such holder to be redeemed. The conditional redemption shall not be available to any holder of Series A Preferred Stock for so long as surety bonds of the Company's insurance subsidiary issued on a partially collateralized basis remain outstanding for the benefit of such holder, and upon redemption, such holder shall no longer be eligible to participate in the partially collateralized bonding programs of the insurance subsidiary. The Company is authorized to issue up to 1,000,000 shares of the Series A Preferred Stock. As of May 31, 2017, the Company has issued 2,675 shares of Series A Preferred Stock in exchange for cash investments in the amount of $2,675,000, of which no shares were issued in fiscal 2017 or 2016. The Company’s outstanding Series A Preferred stock matures on the seventh anniversary of the issuance date and thereafter holders of the Series A Stock are eligible to request that the Company redeem their Series A Shares. As of May 31, 2017, the Company has received requests for redemption of 1,026 shares of Series A Preferred. The aggregate amount to which the holders requesting redemption are entitled as of June 30, 2017, is $1,598,043. Under the terms of the Series A Preferred Stock, upon receipt of such a request, the Company’s Board was required to make a good faith determination regarding (A) whether the funds of the Company legally available for redemption of shares of Series A Stock are sufficient to redeem the total number of shares of Series A Stock to be redeemed on such date and (B) whether the amounts otherwise legally available for redemption would, if used to effect the redemption, not result in an impairment of the operations of the Insurance Subsidiary. If the Board determines that there is a sufficiency of legally available funds to accomplish the redemption and that the use of such funds to affect the redemption will not result in an impairment of the operations of the Insurance Subsidiary, then the redemption shall occur on the Redemption Date. If, however, the Board determines either that there are not sufficient funds legally available to accomplish the redemption or that the use of such funds to effect the redemption will result in an impairment of the operations of the Insurance Subsidiary, then (X) the Company shall notify the holders of shares that would otherwise have been redeemed of such fact and the consequences as provided in this paragraph, (Y) the Company will use those funds which are legally available therefor and which would not result in an impairment of the operations of the Insurance Subsidiary to redeem the maximum possible number of shares of Series A Stock for which Redemption Notices have been received ratably among the holders of such shares to be redeemed based upon their holdings of such shares, and (Z) thereafter, until such shares are redeemed in full, the dividends accruing and payable on such shares of Series A Stock to be redeemed shall be increased by 2% of the Series A Face Amount, with the amount of such increase (i.e., 2% of the Series A Face Amount) to be satisfied by distributions on each Dividend Payment Date of shares of Common Stock having a value (determined by reference to the average closing price of such Common Stock over the preceding 20 trading days) equal to the amount of such increase. The shares of Series A Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Company are legally available for the redemption of shares of Series A Stock and such redemption will not result in an impairment of operations of the Insurance Subsidiary, such funds will immediately be used to redeem the balance of the shares of Series A Stock to be redeemed. No dividends or other distributions shall be declared or paid on, nor shall the Company redeem, purchase or acquire any shares of, the Common Stock or any other class or series of Junior Securities or Equal Ranking Preferred of the Company unless the Redemption Price per share of all shares for which Redemption Notices have been given shall have been paid in full, provided that the redemption price of any Equal Ranking Preferred subject to redemption shall be paid on a pari passu basis with the Redemption Price of the Series A Stock subject to redemption in accordance herewith. Until the Redemption Price for each share of Series A Stock elected to be redeemed shall have been paid in full, such share of Series A Stock shall remain outstanding for all purposes and entitle the holder thereof to all the rights and privileges provided herein, and Dividends shall continue to accrue and, if unpaid prior to the date such shares are redeemed, shall be included as part of the Redemption Price. The Company’s Board of Directors determined based on the criteria established under the terms of the Preferred Stocks that there were insufficient funds available for the redemption of Preferred Stocks. On December 30, 2005, through a private placement, the Company issued 3,980 shares of 8% Non-Voting Series B Convertible Preferred Stock (Series B Preferred Stock), along with 19,900,000 warrants for common shares of Company stock as additional consideration, for a cash investment in the amount of $2,985,000; and issued 4,891 shares of Series B Preferred Stock, along with 24,452,996 warrants for common shares of Company stock as additional consideration, for a conversion of $3,667,949 of indebtedness of the Company, in connection with the Company's acquisition of FSC. Holders of the Series B Preferred Stock are entitled to receive, when and as declared by the board of directors, cumulative preferential cash dividends at a rate of eight percent of the $1,000 liquidation preference per annum (equivalent to a fixed annual rate of $80 per share). The Series B Preferred Stock ranks senior to the Company's common stock and pari passu with the Company's Series A Preferred and Series C Preferred Stock with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company. Each share of the Series B Preferred Stock is convertible at the option of the holder, at any time after the original issue date, into 1,000 fully paid and non-assessable shares of the Company's common stock at a conversion price of $1.00 per common share. The Company may redeem the Series B Preferred Stock at any time after the first anniversary of the Original Issue Date at a price per share equal to the Series B Preferred Stock Face Amount plus all accrued and unpaid dividends with respect to the shares of the Series B Preferred Stock of such holder to be redeemed. To the extent that the Series B Preferred Stock has not been redeemed by the Company, the holder may redeem the Series B Preferred Stock on or after the fifth anniversary of the Original Issue Date at a price per share equal to the Series B Preferred Stock Face Amount plus all accrued and unpaid dividends with respect to the shares of the Series B Preferred Stock of such holder to be redeemed. The Company is authorized to issue up to 10,000 shares of the Series B Preferred Stock. The Company did not issue any additional shares of Series B Preferred Stock during fiscal 2017. The Company’s outstanding Series B Preferred stock matured on December 30, 2010, meaning that the holders of the Series B Stock that had not requested exchange to the Company’s Series C Preferred stock became entitled to request that the Company redeem their Series B Shares. As part of the exchange to Series C Preferred Stock in September 2009, the shares that did not exchange were treated as a liability on the balance sheet. As of May 31, 2017, of the 2,817 shares of Series B Preferred that remained outstanding, the Company has received requests for redemption of 2,219 shares of Series B Preferred. The aggregate amount to which the holders requesting redemption are entitled as of June 30, 2017, is $5,519,942. Under the terms of the Series B Preferred Stock, upon receipt of such a request, the Company’s Board was required to make a good faith determination regarding (A) whether the funds of the Company legally available for redemption of shares of Series B Stock are sufficient to redeem the total number of shares of Series B Stock to be redeemed on such date and (B) whether the amounts otherwise legally available for redemption would, if used to effect the redemption, not result in an impairment of the operations of the Insurance Subsidiary. If the Board determines that there is a sufficiency of legally available funds to accomplish the redemption and that the use of such funds to affect the redemption will not result in an impairment of the operations of the Insurance Subsidiary, then the redemption shall occur on the Redemption Date. If, however, the Board determines either that there are not sufficient funds legally available to accomplish the redemption or that the use of such funds to effect the redemption will result in an impairment of the operations of the Insurance Subsidiary, then (X) the Company shall notify the holders of shares that would otherwise have been redeemed of such fact and the consequences as provided in this paragraph, (Y) the Company will use those funds which are legally available therefor and which would not result in an impairment of the operations of the Insurance Subsidiary to redeem the maximum possible number of shares of Series B Stock for which Redemption Notices have been received ratably among the holders of such shares to be redeemed based upon their holdings of such shares, and (Z) thereafter, until such shares are redeemed in full, the dividends accruing and payable on such shares of Series B Stock to be redeemed shall be increased by 2% of the Series B Face Amount, with the amount of such increase ( i.e. by distributions on each Dividend Payment Date of shares of Common Stock having a value (determined by reference to the average closing price of such Common Stock over the preceding 20 trading days) equal to the amount of such increase. The shares of Series B Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Company are legally available for the redemption of shares of Series B Stock and such redemption will not result in an impairment of operations of the Insurance Subsidiary, such funds will immediately be used to redeem the balance of the shares of Series B Stock to be redeemed. No dividends or other distributions shall be declared or paid on, nor shall the Company redeem, purchase or acquire any shares of, the Common Stock or any other class or series of Junior Securities or Equal Ranking Preferred of the Company unless the Redemption Price per share of all shares for which Redemption Notices have been given shall have been paid in full, provided that the redemption price of any Equal Ranking Preferred subject to redemption shall be paid on a pari passu basis with the Redemption Price of the Series B Stock subject to redemption in accordance herewith. Until the Redemption Price for each share of Series B Stock elected to be redeemed shall have been paid in full, such share of Series B Stock shall remain outstanding for all purposes and entitle the holder thereof to all the rights and privileges provided herein, and Dividends shall continue to accrue and, if unpaid prior to the date such shares are redeemed, shall be included as part of the Redemption Price. The Company’s Board of Directors determined based on the criteria established under the terms of the Series B Preferred Stock that there were insufficient funds available for the redemption of Series B Stock. The Company experienced a loss after accretion of mandatorily redeemable convertible preferred stock, and accrued dividends on mandatorily redeemable preferred stock of $1,357,656 in fiscal 2017 as compared with a loss after accretion of mandatorily redeemable convertible preferred stock, and accrued dividends on mandatorily redeemable preferred stock of $108,386 in fiscal 2016. Equity Preferred Stock As a means of alleviating obligations associated with the Company's Series B Preferred Stock, which by its terms matured at the end of 2010, management proposed a recapitalization to assist in stabilizing the financial position of the Company. The Company’s Certificate of Incorporation provides for two classes of capital stock, known as common stock, $0.0001 par value per share (the “ Common Stock Preferred Stock 1. Designation. The shares of such series of Preferred Stock are designated “Series C Preferred Stock” (referred to herein as the “ Series C Stock Original Issue Date 2. Authorized Number. The number of shares constituting the Series C Stock is 10,000. 3. Ranking. The Series C Stock ranks, (a) as to dividends and upon Liquidation senior and prior to the Common Stock and all other equity securities to which the Series C ranks prior, with respect to dividends and upon Liquidation (collectively, “ Junior Securities Series A Stock Equal Ranking Preferred 4. Dividends. (a) Dividend Accrual and Payment Dividends Series B Amount Dividend Payment Date first then Series B Original Issue Date The Recapitalization consisted of the exchange of Series B Shares for a combination of Series C Shares and Common Stock. For each Series B Share, the participating holder received (i) one Series C Share and (ii) 2,000 shares of JFG Common Stock (for no additional consideration). For the year ended May 31, 2010, 6,805 shares of Series B Stock were surrendered and exchanged for 6,805 shares of Series C Stock. This exchange amounted to $6,269,051 of carrying value of Series B stock being exchanged for Series C and Common Stock. 13,609,872 shares of Common Stock were issued to the Series C Stock holders at the rate of 2,000 Common shares for each exchanged Series B Stock, with the related cost associated with the Common issuance offsetting the Series C carrying value by $265,120. The shares were valued at approximately $.01948 per share based on the average quoted closing price of the Company's stock for the 20-day period proceeding the date of the transaction. Series C stock may be redeemed by the Company but does not have a fixed maturity date and, thus, is classified as permanent equity. For the year ending May 31, 2016, 2,817 shares of Series B Stock had not been exchanged. The accrual of dividends on the equity preferred stock resulted in a charge to common stockholders’ equity and a credit to the equity of equity preferred stock of $1,256,829 in fiscal 2017 as compared with a charge to common stockholders’ equity of $1,164,143 in fiscal 2016. Dividend Preference and Accretion The Series A Shares are entitled to receive cumulative dividends at the compounding rate of 4.00% per annum. The Series B Shares have an 8.0% per annum compounding dividend preference, are convertible into Common Shares of JFG at the option of the holders at a conversion price of $1.00 per Share (as adjusted for dilution) and, to the extent not converted, must be redeemed by the Corporation at any time after December 31, 2010 at the option of the holder. Any such redemption is subject to legal constraints, such as the availability of capital or surplus out of which to pay the redemption, and to a determination by the Board of Directors that the redemption will not impair the operations of First Surety Corporation. The Series C Shares issued in the Recapitalization have the same 8.0% per annum compounding dividend preference and carry over from the Series B Shares the same accrued but unpaid dividends. While dividends had never been declared on the Series B shares, they had been accrued, increasing the dividend preference and the redemption price and liquidity preference of such shares and increasing the liability represented thereby based upon the Series B Shares fixed maturity date. The accrued (but undeclared) dividends associated with the Series C exchange amounted to $2,295,624 and are included in the total amount exchanged for Series C Shares. Unlike the Series B Shares with their fixed maturity date, the Series C Shares are permanent equity, with accruing dividends only increasing the preference amount that must be satisfied before junior securities may participate in dividends or on liquidation. Accordingly, the effect of the accrual of dividends with respect to the Series C Shares on the Company’s balance sheet is to increase the aggregate claim of the Series C Shares on the equity of the corporation and to increase the deficit in common equity, while having no effect on the net equity of the corporation as a whole. The entitlement of the Series C Shares to a priority in relation to junior securities with respect to dividends and on liquidation does not create an obligation to the Company and therefore no liability is recorded until the dividends are declared by the Board of the Company. The Series C Shares are pari passu with the Corporation’s Series A Preferred Stock and Series B Shares (to the extent any remain outstanding following the Recapitalization) and no dividends or other distributions will be paid upon Common Shares or any other class of Shares that is junior in priority to the Series C Preferred while dividends are in arrears. In addition, the Series C Shares are convertible into Common Shares of JFG at the option of the holders at a conversion price of $0.10 per Share. The Series C Shares may be redeemed by the Corporation, at its option, when it is in a financial position to do so. Holders of over 70% of the outstanding Series B Preferred Shares elected to participate in the recapitalization. The shares of Series B Preferred Shareholders that chose not to convert are listed in the Liabilities section of the Balance Sheet, and therefore the accretion and dividends associated with the Series B stock after November 30, 2009 are deductions from net income. Dividends on Series B mandatorily redeemable preferred stock deducted from net income amounted to $522,099 for the year ended May 31, 2017. The remaining Series B shares not converted were accreted from carrying value to the face amount for the 5 year period from the date of issuance. Series C stock has no accretion. There were no shares of Series B Stock surrendered or exchanged in the year ended May 31, 2016. During the year ended May 31, 2012, two holders of Series A stock released all of their outstanding bonds held with FSC. These shares of Series A Preferred Shareholders are listed in the liability section of the Balance Sheet as of May 31, 2017, in the amount of $1,738,792, which consists of the fully accreted $1,126,000 face value of stock and $612,792 in dividends payable. The dividends associated with these shares of Series A stock for the year ended May 31, 2017, is a deduction from net income in the amount of $67,847. There was no current accretion on these shares of Series A stock. As of May 31, 2017 the Company has chosen to defer payment of dividends on Series A Preferred Stock with such accrued and unpaid dividends amounting to $1,311,080 through May 31, 2017. These dividends are included in the amounts reported on the face of the balance sheet for each classification of Series A stock. As of May 31, 2017 the Company has chosen to defer payment of dividends on Series B and Series C Preferred Stock with such accrued and unpaid dividends amounting to $4,038,772 and $9,698,738 through May 31, 2017, respectively. These dividends are included in the amounts reported on the face of the balance sheet for each respective classification of stock. Accounting Treatment U.S. GAAP requires that an entity classify as liabilities certain financial instruments with characteristics of both liabilities and equity. The Company's Series A and B Preferred stock each have mandatory redemption features that subject the Company to the analysis of equity versus liability. Both Series A and B have features that embody a conditional obligation to redeem the instrument upon events not certain to occur and accordingly, are not classified as liabilities until such events are certain to occur. With respect to the Series A Preferred Stock, such condition is contingent upon the holder having no further need for surety bonds issued by the Company's insurance subsidiary (FSC) under its partially collateralized bonding programs and, having no such surety bonds then outstanding. With respect to the Series B Preferred Stock, if the stock provides an option to the holder to convert to common shares at a rate equivalent to fair value, then the financial instruments are not mandatorily redeemable during the period in which the holder can convert the shares into common shares. Accordingly, the Company has determined that only the Series A preferred stocks held by principals with outstanding surety bonds should not be classified as liabilities. However, in accordance with FASB’s Accounting Standards Codification Topic 480-10-S99-4, Liabilities, |
K. Stock Warrants
K. Stock Warrants | 12 Months Ended |
May 31, 2017 | |
Stock Warrants | |
Stock Warrants | Note K - Stock Warrants On December 30, 2005, the Company issued warrants to purchase 45,402,996 shares of common stock in connection with the Series A and B Preferred Stock private placements. The exercise price of the warrants is $.001 per share. The warrants were valued using the Black-Scholes pricing model. The warrants issued in connection with the Series A Preferred Stock were valued at $.08 per share or $83,043. The warrants issued in connection with the Series B Preferred Stock were valued at $.01 per share or $449,972. 386,667 warrants issued in connection with Series B Preferred Stock expired unexercised on the fifth anniversary at December 31, 2010; 600,000 warrants issued in connection with Series A Preferred Stock expired unexercised on the seventh anniversary at December 31, 2012. As of May 31, 2017, there were no warrants outstanding. |
L. Stock-Based Compensation
L. Stock-Based Compensation | 12 Months Ended |
May 31, 2017 | |
Stock-Based Compensation | |
Stock-Based Compensation | Note L-Stock-Based Compensation On October 12, 2005, the board of directors adopted its 2005 Stock Incentive Plan (the "Plan") to allow the Company to make awards of stock options as part of the Company's compensation to key employees, non-employee directors, contractors and consultants. The Plan was approved by the stockholders on December 8, 2005. The aggregate number of shares of Common Stock issuable under all awards under the Plan is 35,000,000. No awards may be granted under the Plan after December 8, 2015. On December 28, 2006, the compensation committee of the board of directors awarded 2,100,000 of incentive stock options to acquire common shares at an exercise price of $.04 per share, of which 450,000 shares vested immediately and the remaining 1,650,000 options vesting over the next three years ending in December 2009. As of May 31, 2010, the awarded options had been reduced to 1,800,000 due to changes in employment status, all of which expired in December 2011. On June 30, 2009 the compensation committee of the board of directors awarded 10,000,000 of incentive stock options to acquire common shares at an exercise price of $.04 per share, of which 4,700,000 shares vested immediately and the remaining 5,300,000 options vesting over the next three years ending in June 2011. As of May 31, 2015, the awarded options had been reduced to 9,800,000 due to changes in employment status, all of which expired in June 2014. The Plan’s terms defined that it would terminate upon the earlier of (1) the adoption of a resolution by the Company terminating the Plan; or (2) ten years from the date on which the Plan is initially approved by the stockholders of the Company, therefore the Plan terminated on October 12, 2015. There were no options exercised in fiscal 2017 or 2016. There is no unrecognized compensation expense related to non-vested awards at May 31, 2017 or May 31, 2016 as all awards are fully vested. |
M. Income Taxes
M. Income Taxes | 12 Months Ended |
May 31, 2017 | |
Income Taxes | |
Income Taxes | Note M – Income Taxes Deferred tax assets and liabilities are recorded for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements. Such differences include the income recognition of a portion of the unearned premium reserve, loss reserve deductibility, certain accrued expenses that are not paid within specified time frames by the Internal Revenue Service, and the deductibility of deferred policy acquisition costs paid. As of May 31, 2017, the Company had estimated operating loss carry forwards of approximately $14.2 million. These carry forwards began expiring in 2015 and, as a result of the ownership change resulting from the 2001 acquisitions of FSI and Jacobs, the utilization of approximately $6.4 million of the operating loss carry forwards are substantially limited. The Company has fully reserved the $3.3 million tax benefit of the operating loss carry forward, adjusted for the Tax Cuts and Jobs Act enacted December 22, 2017, by a valuation allowance of the same amount, because the likelihood of realization of the tax benefit is doubtful. |
N. Stockholders' Equity
N. Stockholders' Equity | 12 Months Ended |
May 31, 2017 | |
Stockholders Equity | |
Stockholders' Equity | Note N – Stockholders’ Equity In fiscal 2017, the Company issued 300,000 shares of the Company’s common stock as additional consideration in connection with new and continued borrowings totaling $75,000. The shares were valued at approximately $.002520 per share based on the average quoted closing price of the Company’s stock for the 20-day period preceding the date of the transaction and totaled $756. In fiscal 2017, the Company issued 500,000 shares of the Company’s common stock as additional consideration for the purchase and loans convertible into the purchase of 5% of FSC subsidiary stock. The shares were valued at approximately $.002705 per share based on the average quoted closing price of the Company’s stock for the 20-day period preceding the date of the transaction and totaled $1,353. In fiscal 2016, the Company issued 1,878,000 shares of the Company's common stock as additional consideration in connection with new and continued borrowings totaling $1,878,000. The shares were valued at approximately $.002887 per share based on the average quoted closing price of the Company's stock for the 20-day period preceding the date of the transaction and totaled $5,422. In fiscal 2016, the Company issued 11,956,049 shares of the Company’s common stock in connection with the additional 2% stock dividend associated with Series A and B Preferred shares that were requested to be redeemed upon maturity (see Note J). The shares were valued at approximately $.003208 per share based on the average quoted closing price of the Company's stock for the 20-day period preceding the date of the transaction and totaled $38,352. In fiscal 2016, the Company issued 2,500,000 shares of the Company's common stock as additional consideration for the purchase and loans convertible into the purchase of 25% of FSC subsidiary stock. The shares were valued at approximately $.002566 per share based on the average quoted closing price of the Company's stock for the 20-day period preceding the date of the transaction and totaled $6,415. |
O. Statutory Financial Data (Un
O. Statutory Financial Data (Unaudited) | 12 Months Ended |
May 31, 2017 | |
Statutory Financial Data (Unaudited) | |
Statutory Financial Data (Unaudited) | Note O-Statutory Financial Data (Unaudited) The Company’s insurance subsidiary files calendar year financial statements prepared in accordance with statutory accounting practices prescribed or permitted by regulatory authorities. The principal differences between statutory financial statements and financial statements prepared in accordance with generally accepted accounting principles are that statutory financial statements do not reflect deferred policy acquisition costs and certain assets. Statutory capital and surplus as of May 31, 2017 and 2016, and net income for the Company’s insurance subsidiary for the calendar year ended December 31, 2016 and 2015 and five-month periods ended May 31, 2017 and 2016 are as follows: Statutory Capital and Surplus May 31, 2017 $ 13,485,339 Statutory Capital and Surplus May 31, 2016 $ 4,958,584 Net Income Calendar year 2016 ($ 113,636 ) Net Income Calendar year 2015 ($ 762,295 ) Net Income Five-month period 2017 $ 689,746 Net Income Five-month period 2016 $ 37,446 Statutory surplus exceeds the West Virginia state law minimum capital requirements of $2.0 million. Under the West Virginia insurance code, ordinary dividends to stockholders are allowed to be paid only from that part of the insurance subsidiary’s (FSC’s) available surplus funds which constitutes realized net profits from the business and whereby all such dividends or distributions made within the preceding twelve months do not exceed the lesser of 10% of FSC’s surplus as regards to policyholders as of December 31 st On March 26, 2012 the Commissioner of the State of West Virginia (WVOIC) terminated in its entirety the Amended Consent Order of June 7, 2007 and terminated the restrictive conditions of the Consent Order issued December 23, 2005 which approved acquisition of FSC by the Company. Among other consequences, removal of these restrictions allowed dividends to be declared by and paid from FSC to the Company. No dividends were declared or paid for the twelve month periods ended May 31, 2017 or May 31, 2016. |
P. Commitments and Contingenci
P. Commitments and Contingencies | 12 Months Ended |
May 31, 2017 | |
Commitments And Contingencies | |
Commitments and Contingencies | Note P – Commitments and Contingencies Lease Commitments The Company leases certain office equipment with combined monthly payments of approximately $425 that have varying remaining terms of less than five years. The Company leases office, parking and storage space under month-to-month lease arrangements that approximate $2,978 each month. The Company’s inactive subsidiary, Crystal Mountain Spring Water, holds an undeveloped leasehold interest in a mineral water spring located near Hot Springs, Arkansas. Under the leasehold arrangement, the Company makes minimum lease payments of $180 per month. The Company has options to extend the leasehold arrangement through October 2026 and also has a right to cancel the lease at any time upon sixty (60) days written notice. Rental expense for these lease commitments totaled approximately $43,321 and $45,086 during fiscal years 2017 and 2016. Minimum future lease payments under non-cancelable operating leases having remaining terms in excess of one year as of May 31, 2017 are: Fiscal year 2017-2018 $ 38,176 Fiscal year 2018-2019 38,604 Total $ 76,780 During 2013, the Company and one of its surety principals entered into a contractual arrangement whereby the Company would hold collateral for use in paying future claims and expenses and upon the Company’s determination that its liability had been fully extinguished, the Company would return the amount of the deposits less any paid claims or expenses. While the Company holds the collateral, the Company will pay 1.35% annual simple interest to the principal. The Company receives any appreciation and earnings in excess of the contractual deposit, less payments, and interest paid to the principal. This deposit and the earning or expenses associated with the deposit are included in the calculation of the Company’s investment income. |
Q. Financial Instruments
Q. Financial Instruments | 12 Months Ended |
May 31, 2017 | |
Financial Instruments | |
Financial Instruments | Note Q – Financial Instruments Fair Value The following methods and assumptions were used to estimate fair value of each class of financial instruments for which it is practicable to estimate that value: Investment Securities Fair values for investment securities (U.S. Government, government agencies, government agency mortgage-backed securities, state and municipal securities, and equity securities) held for investment purposes (available-for-sale) are based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Other Financial Instruments The carrying amount of cash, short-term investments, receivables, prepaid expenses, short-term and demand notes payable, accounts payable, accrued expenses and other liabilities approximate fair value because of the immediate or relatively short-term maturity of these financial instruments. Fair value of term notes payable, including notes payable under the bridge-financing arrangement, were deemed to approximate their carrying value based on the Company’s incremental borrowing rates for similar types of borrowings with maturities consistent with those remaining for the debt being valued. The carrying amounts and fair values of the Company’s financial instruments at May 31, 2017 and 2016 are as follows: 2017 2016 Carrying Amount Fair Value Carrying Amount Fair Value ASSETS Bonds available for sale $ 33,634,402 $ 33,546,645 $ 7,170,789 $ 7,230,261 Cash and short-term investments 2,405,450 2,405,450 663,562 663,562 Premiums and other receivables 513,113 513,113 (76,413 ) (76,413 ) Equity securities (including derivatives) 2,465,221 2,422,476 1,550,217 1,488,440 LIABILITIES Notes payable 6,463,439 6,463,439 6,861,954 6,861,954 Accounts payable and advance premiums 388,771 388,771 414,787 414,787 Accrued expenses and other liabilities 23,936,898 23,936,898 3,274,094 3,274,094 |
R. Other Risks and Concentratio
R. Other Risks and Concentrations | 12 Months Ended |
May 31, 2017 | |
Other Risks and Concentrations | |
Other Risks and Concentrations | Note R – Other Risks and Concentrations Concentration of Credit Risk As of May 31, 2017 the Company’s investment securities of approximately $38,000,000 are comprised solely of mortgage-backed securities, fixed maturity municipal bonds, equity investments, and money-market mutual funds that invest principally in obligations issued by the U.S government, its agencies or instrumentalities. Such instruments are generally considered to be of the highest credit quality investment available. The Company transacts the majority of its business with three financial institutions, one for commercial banking services and the others for brokerage and custodial services. Periodically, the amount on deposit in financial institutions providing commercial banking services exceeds federally insured limits. Management believes these financial institutions are financially sound. With respect to the financial institutions providing brokerage and custodial services, amounts on deposit are invested in money market funds that invest principally in obligations issued by the U.S government, its agencies or instrumentalities. Management has established an allowance for estimated uncollectible accounts of less than 3% of outstanding premiums and other receivables believing that most receivables are collectible. Concentration in Products, Markets and Customers The Company’s insurance subsidiary currently writes only the surety line of business, is licensed to write surety only in West Virginia and Ohio and has focused its primary efforts towards coal permit bonds. Such business, including investment advisory fees from managed collateral accounts, accounted for approximately 34% and 66% of the Company’s fiscal 2017 and 2016 revenues, respectively. Furthermore, the Company provides surety bonds to companies that share common ownership interests that constitute 18% and 36% of the Company’s fiscal 2017 and 2016 revenues, respectively, as follows: 2017 2016 Surety Premium Investment Advisory Fees Surety Premium Investment Advisory Fees Customer group #1 $ 85,000 $ — $ 116,000 $ — Customer group #2 169,000 16,000 190,000 17,000 Customer group #3 175,000 3,000 180,000 3,000 Customer group #4 205,000 4,000 205,000 4,000 Total $ 634,000 $ 23,000 $ 691,000 $ 24,000 |
S. Segment Reporting
S. Segment Reporting | 12 Months Ended |
May 31, 2017 | |
Segment Reporting | |
Segment Reporting | Note S – Segment Reporting The Company has two reportable segments, investment advisory services and surety insurance products and services. The following table presents revenue and other financial information by industry segment. Year Ended Industry Segment May 31, 2017 May 31, 2016 Revenues: Investment advisory $ 351,227 $ 506,373 Surety insurance 2,518,089 829,456 Corporate — — Total revenues $ 2,869,316 $ 1,335,829 Operating Income (Loss): Investment advisory $ (134,431 ) $ (49,976 ) Surety insurance 717,313 (1,678,551 ) Corporate (1,590,079 ) 468,785 Total operating income (loss) $ (1,007,197 ) $ (1,259,742 )) Identifiable Assets: Investment advisory $ 55,146 $ 43,129 Surety insurance 39,978,039 9,831,940 Corporate 2,109,740 1,483,127 Total assets $ 42,142,925 $ 11,358,196 Capital Acquisitions: Investment advisory $ 2,296 $ — Surety insurance 36,064 — Corporate 2,249 548 Total capital acquisitions $ 40,609 $ 548 Depreciation Charged to Identifiable Assets: Investment advisory $ 58 $ — Surety insurance 3,811 1,236 Corporate 729 15 Total Depreciation $ 4,598 $ 1,251 Interest Expense: Investment advisory $ 107 $ — Surety insurance 341,515 350,099 Corporate 233,349 564,999 Total interest expense $ 574,971 $ 915,098 |
T. Related Party Transactions
T. Related Party Transactions | 12 Months Ended |
May 31, 2017 | |
Related Party Transactions | |
Related Party Transactions | Note T – Related Party Transactions Borrowing and other transactions of Largest Shareholder and CEO For the past several years the Company’s operating expenses were partially funded by advances from its largest shareholder and chief executive officer, John M. Jacobs. The source of funding for these advances originated with obligations incurred by Mr. Jacobs with third parties (such obligations together with the loans by Mr. Jacobs to the Company, “back-to-back loans”) with interest rates ranging from 6% to 12%. This amount is unsecured and payable on demand. To assure that repayments of the various borrowings by the Company that were either guaranteed by Mr. Jacobs or loaned to the Company by Mr. Jacobs via such back-to-back loan arrangements did not result in a deemed loan to Mr. Jacobs, because Mr. Jacobs entered into an Assumption Agreement with the Company. Pursuant to the assumption agreement Mr. Jacobs assumes, and agrees to hold the Company harmless from, principal of specified indebtedness of the Company and to fully offset when necessary what might otherwise be deemed an advance of funds arising out of the Company’s financing activities. During fiscal 2017, advances to the Company from Mr. Jacobs amounted to $359,298 and repayments to Mr. Jacobs amounted to $783,755. As of May 31, 2017, the balance due from Mr. Jacobs $939,945. The largest aggregate amount outstanding from Mr. Jacobs in fiscal 2017 was $955,646. During fiscal 2016, advances to the Company from Mr. Jacobs amounted to $1,088,758, and repayments to Mr. Jacobs amounted to $971,207. As of May 31, 2016, the balance due from Mr. Jacobs was $515,488. The largest aggregate amount outstanding from Mr. Jacobs in fiscal 2016 was $549,143. As of May 31, 2018, $24,000 was owed to Mr. Jacobs by the Company. The rate of interest on such amounts due from and obligations due to Mr. Jacobs was 6% and 12% respectively for both the 2017 and 2016 fiscal years. Other related parties During the years ended May 31, 2017 and May 31, 2016, a company owned by a board member provided consulting services. This company provided services totaling $66,100 and $62,100 in 2017 and 2016. Amounts owed to this company at year end are treated as related party payables in the amounts $124,323 and $124,723 at May 31, 2017 and 2016 respectively. During the year ended May 31, 2015, the Company borrowed money from an individual that is a board member. Total amounts owed to this individual at May 31, 2017 consisted of $75,000 in demand notes and $5,000 in accrued interest. During the year ended May 31, 2016, an individual who holds secured notes payables from the Company, became a greater than 10% owner of outstanding common stock of the Company. During the year ended May 31, 2016, the Company borrowed additional money from this individual and entities controlled by this individual. Amounts owed to this individual (and the individual’s companies and relatives) at May 31, 2017 consisted of $1,020,079 in demand notes, $1,248,920 in notes payable secured by FSC stock, and $26,853 in accrued interest (with $122,766 and $124,444 of interest expense for the periods ending May 31, 2017 and 2016, respectively). This individual also arranged to purchase a 15.00% interest in First Surety Corporation for $1,500,000 through a combination of cash and a Promissory Note for $1,250,000 secured by assignment of debt payable by the Company. This sale also resulted in the issuance of 1,500,000 shares of common stock of the Company. As of May 31, 2017, the amounts receivable from this individual amounted to $960,540, with interest income of $83,894 and $75,168 for the periods ending May 31, 2017 and 2016. |
U. Reinsurance
U. Reinsurance | 12 Months Ended |
May 31, 2017 | |
Reinsurance | |
Reinsurance | Note U – Reinsurance The Company limits the maximum net loss that can arise from large risks by reinsuring (ceding) certain levels of such risk with reinsurers. Ceded reinsurance is treated as the risk and liability of the assuming companies. The Company cedes insurance to other companies and these reinsurance contracts do not relieve the Company from its obligations to policyholders. Effective April 1, 2009, FSC entered into a reinsurance agreement with various syndicates at Lloyd’s of London (“Reinsurer”) for its coal reclamation surety bonding programs. The agreement has been renewed annually with the Reinsurer, with the most recent renewal effective April 1, 2017. The reinsurance agreement is an excess of loss contract which protects the Company against losses up to certain limits over stipulated amounts and can be terminated by either party by written notice of at least 90 days prior to any July 1. The contract calls for a premium rate of 35% subject to a minimum premium of $490,000. Deposits to the reinsurers are made quarterly in arrears in equal amounts of $140,000. At May 31, 2017 and May 31, 2016, the Company had prepaid reinsurance premiums of $418,124 and $232,647. There were no ceded Loss and Loss Adjustment Expenses for the years ended May 31, 2017 or 2016. The effects of reinsurance on premium written and earned for fiscal 2017 and 2016 are as follows; 2017 Written 2017 Earned 2016 Written 2016 Earned Direct $ 2,948,921 $ 2,283,329 $ 1,466,837 $ 1,407,905 Ceded 1,007,008 821,531 453,587 428,353 Net $ 1,941,913 $ 1,461,798 $ 1,013,250 $ 979,552 |
V. Events Subsequent to May 31,
V. Events Subsequent to May 31, 2016 | 12 Months Ended |
May 31, 2017 | |
Events Subsequent To May 31 2016 | |
Events Subsequent to May 31, 2016 | Note V – Events Subsequent to May 31, 2017 Subsequent to May 31, 2017, the Company obtained various borrowings from individuals and businesses through May 31, 2018 totaling $120,600 at rates varying from 10% to 14%, which mature at various dates subsequent to this filing, and made repayments on notes in the amount of $290,218. These borrowings, and the renewal of other borrowings, included no issuances of shares of its common stock as additional consideration. Additionally, the Company obtained borrowings of $730,693, including $388,788 assumption of Company debt, from its principal shareholder and chief executive officer under a pre-approved financing arrangement bearing interest at the rate of 12% and made repayments totaling $158,883. After The Company elected to continue to defer payment of quarterly dividends on its Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock with such accumulated accrued and unpaid dividends amounting to $1,472,931, $4,603,909 and $11,059,170 as of May 31, 2018. Subsequent to May 31, 2017, the Registrant sold 15.50% interest in First Surety Corporation to various individuals for $1,550,000. This sale also resulted in the issuance of 1,550,000 shares of common stock of the Company. In addition, the Company converted a note payable from a lender for 3% interest in First Surety Corporation. |
A. Organization and Business (P
A. Organization and Business (Policies) | 12 Months Ended |
May 31, 2017 | |
Accounting Policies Policies | |
Organization and Nature of Business | Organization and Nature of Business Jacobs Financial Group, Inc. (the “Company” or “JFG”), formerly NELX, Inc., was incorporated in Kansas on March 25, 1983. In 2001, the Company acquired all the outstanding stock of two corporations located in Charleston, West Virginia: Jacobs & Company (“Jacobs”) and FS Investments, Inc. (“FSI”). Jacobs is a registered investment advisory firm that derives its revenue from asset-based investment advisory fees. FSI, through its wholly-owned subsidiary Triangle Surety Agency, Inc. (“Triangle”), is engaged in the business of placing surety bonds with insurance companies for clients engaged in regulated industries, such as the extraction of coal, oil and gas. Triangle receives commission income from the placement of these bonds and is licensed in five states primarily in the eastern United States. On December 30, 2005, the Company acquired all of the outstanding stock of West Virginia Fire & Casualty Company (“WVFCC”), an insurance company licensed to engage in business in West Virginia, Ohio and Indiana. The acquisition of WVFCC consisted of the purchase of marketable investments and insurance licenses and did not include any existing policies or customer base as the insurance lines of business offered by WVFCC were not insurance lines that the Company intended to pursue. Following the acquisition, the name of WVFCC was changed to First Surety Corporation (“FSC”). FSC receives insurance premium income in connection with the issuance of surety bonds. The Company and its subsidiaries are subject to the business risks inherent in the financial services industry. |
Liquidity and Going Concern | Liquidity, Financial Resources and Substantial Doubt about Going Concern These consolidated financial statements are presented on the basis that the Company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. Presently, the Company has insufficient liquidity, financial resources, is in default with certain loan and preferred stock agreements, and has suffered significant recurring losses from operations. Losses are expected to continue until the Company develops a more substantial book of business. While improvement is anticipated as the Company’s business plan is implemented, other conditions, such as restrictions on the use of FSC’s assets (See Note C), and the Company’s significant deficiency in working capital and stockholders’ equity raise substantial doubt about the Company’s ability to continue as a going concern. Management intends to improve cash flow through the implementation of its business plan. Additionally, management continues to seek to raise additional funds for operations through private placements of stock, other long-term or permanent financing, or short-term borrowings. However, the Company cannot be certain that it will be able to continue to obtain adequate funding in order to reasonably predict whether it will be able to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. |
Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the accounts of Jacobs Financial Group, Inc. and its majority owned subsidiaries, after the elimination of intercompany transactions. |
Non-Controlling Interest | Non-Controlling Interest First Surety Corporation, a subsidiary of the Jacobs Financial Group, Inc. has a non-controlling ownership interest. The Company’s board of directors has authorized the sale of Units (5% per Unit), which, if completed, would include forty-nine percent (49%) of the outstanding stock of FSC. As of May 31, 2017, the Company still had ownership of 70% of First Surety Corporation. For further discussion of these Units, see Note H. Summarized balance sheet and income statement amounts for First Surety Corporation are as follows; FSC Balance Sheet As of May 31,2017 Total Assets $ 39,599,254 Total Liabilities 25,930,920 Total Equity 13,668,334 Total Liabilities and Equity $ 39,599,254 FSC Income Statement Year Ended May 31,2017 Total Revenue $ 2,459,801 Total Expenses (1,828,415 ) Net Income $ 631,386 |
Cash and Short Term Investments | Cash and Short Term Investments The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests. |
Use of Estimates | Use of Estimates Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates are loss reserves, valuation of investments, and the valuation of deferred tax assets. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. |
Revenue Recognition | Revenue and Expense Recognition Fees for investment advisory services are based on an agreed percentage of the value of client assets under management and are accrued monthly based on the market value of client assets. The Company accounts for its surety bond issuances as short duration contracts. Surety premiums are recorded as receivables when due and are earned pro rata over the term of the policies of generally one year, subject to annual renewal. The reserve for unearned premiums represents the deferred revenue portion of premiums written relating to the unexpired terms of coverage. The reserve for unearned premium is determined using the monthly pro rata method. Advance premiums represent renewal premiums paid in advance of the effective renewal date. Agency commissions for surety bond services are based on a percentage of premiums charged for bonds placed with insurance companies, and are recorded upon issuance or effective renewal date of the bonds. No significant continuing services subsequent to the issuance or renewal of surety bonds are required. Policy acquisition costs include costs that vary with and are primarily related to the acquisition of new business. Such costs generally include commissions, underwriting expenses, and premium taxes and are deferred and amortized over the period in which the related premiums are earned. The deferred policy acquisition cost assets are reviewed for recoverability based on the profitability of the underlying surety policy. Investment income is not considered in the determination of recoverability of deferred policy acquisition costs. |
Investments | Investments Debt securities are designated at purchase as held-to-maturity, trading or available for sale. Held-to-maturity debt securities are carried at amortized cost where the Company has the ability and intent to hold these securities until maturity. Premiums and discounts arising from the purchase of debt securities are treated as yield adjustments over the estimated lives or call date, if applicable. Debt and equity securities that the Company may not have a positive intent to hold until maturity and not classified as trading, are considered to be available for sale and carried at fair value. Management has determined it may dispose of securities prior to their scheduled maturity due to changes in interest rates, prepayments, tax and credit considerations, liquidity or regulatory capital requirements, or other similar factors. These securities are reported at fair value, with unrealized gains and losses, net of deferred income taxes, reported in stockholders’ equity as a separate component of accumulated other comprehensive income. Debt and equity securities that are bought and held principally for sale in the near future are classified as trading securities and are carried at fair value, with changes in fair value being recorded in current operations. Short-term investments consist primarily of debt securities having maturities of one year or less at date of purchase, and other similar investments that have immediate availability. An investment is considered impaired when its fair value is less than its cost or amortized cost, as applicable. When an investment is impaired, a determination is made as to whether the impairment is other than temporary (“OTTI”). Factors considered in identifying OTTI include: 1) for debt securities, whether the Company intends to sell the investment or whether it is more likely than not that the Company will be required to sell the security prior to the anticipated recovery in value; 2) the likelihood of the recoverability of principal and interest for debt securities (i.e., whether there is a credit loss) or cost for equity securities; 3) the length of time and extent to which the fair value has been less than amortized cost for debt securities or carrying value for equity securities; and 4) the financial condition, near-term and long-term prospects for the issuer, including the relevant industry conditions and trends, and implications of rating agency actions and offering prices. Realized gains and losses are determined by specific identification of the security sold. Interest income with respect to fixed maturity securities is accrued as earned. Dividend income is generally recognized when receivable. |
Derivatives | Derivatives The Company uses derivatives in the form of covered call options sold to generate additional income and provide limited downside protection in the event of a market correction. These transactions expose the Company to potential market risk for which the Company receives a premium up front and the Company realizes the option premium received as income. The market risk relates to the requirement to deliver the underlying security to the purchaser of the call within a definite time at an agreed market price regardless of the then current market price of the security. As a result the Company takes the risk that it may be required to sell the security at the strike price, which could be a price less than the then market price. Should the security decline in market price over the holding period of the call option, the Company can lessen or mitigate the risk of loss with a closing transaction for the covered call and sale of the underlying security. The Company invests in large capitalized US securities traded on major US exchanges and writes standardized covered calls only against these positions (covered calls), which are openly traded on major US exchanges. The use of such underlying securities and standardized calls lessens the credit risk to the furthest extent possible. The Company is not exposed to significant cash requirements through the use of covered calls in that it sells a call for a premium and may use these proceeds to enter a closing transaction for the call at a later date. |
Allowance for uncollectible premium and other receivables | Allowance for uncollectible premium and other receivables The majority of the Company’s fee revenue is generated by services provided to companies and individuals throughout the Eastern United States. Management evaluates the need for a reserve for the amount of related receivables that may be uncollectible, based on historical collection activity adjusted for current conditions. Premium and other receivables are charged-off when deemed uncollectible. Based on this evaluation management has established an allowance for estimated uncollectible accounts of $15,053 and $40,658 for fiscal 2017 and 2016, respectfully. |
Long-lived Assets | Long-lived Assets The Company evaluates long-lived assets for impairment annually, or whenever events or changes in circumstances indicate that the assets may not be recoverable. Impairment is measured by discounting estimated future cash flows expected to be generated, and comparing this amount to the carrying value of the asset. Cash flows are calculated utilizing forecasts and projections and estimated lives of the assets being analyzed. Should actual results differ from those forecasted and projected the Company may be subject to future impairment charges related to recovery of these long-lived assets. During the periods presented management determined impairment had not occurred. |
Furniture and Equipment | Furniture and Equipment Furniture and equipment is recorded at cost. Maintenance and repairs are charged to operations when incurred. When property and equipment are sold or disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. The cost of property and equipment is depreciated over the estimated useful lives of the related assets, ranging from three to seven years, using the straight-line or double-declining balance methods, which approximates estimated economic depreciation. |
Reserve for Losses and Loss Expenses | Reserve for Losses and Loss Expenses Losses and loss adjustment expenses represent management’s best estimate of the ultimate net cost of all reported and unreported losses incurred. Reserves for unpaid losses and loss adjustment expenses are estimated using industry averages, however, will include individual case-basis valuations in the event claims are received. These estimates and methods of establishing reserves are continually reviewed and updated. |
Stock-based Compensation | Stock-based Compensation The fair value of stock options is estimated at the grant date using the Black Scholes Option Pricing Model. This model requires the input of a number of assumptions, including expected volatility and dividend yields, expected stock price, risk-free interest rates, and an expected life of the options. Although the assumptions used reflect management’s best estimate, they involve inherent uncertainties based on market conditions generally outside the control of the Company. As of and for the periods presented there were no stock options outstanding. |
Income Taxes | Income Taxes The Company currently has net operating loss (“NOL”) carry-forwards that can be utilized to offset future income for federal and state tax purposes. These NOLs represent a significant deferred tax asset. However, the Company has recorded a valuation allowance against this deferred tax asset as it has determined that it is more likely than not that it will not be able to fully utilize the NOLs. Should assumptions regarding the utilization of these NOLs change, the Company may reduce some or all of this valuation allowance, which would result in the recording of a deferred income tax benefit. The Company follows a more-likely-than-not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return. If taxing authorities were to disallow any tax positions taken by the Company, the additional income taxes, if any, would be imposed on the Company. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. However, no interest or penalties have been assessed as of May 31, 2017 or 2016. On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act, among other things, reduces the U. S. federal income tax rate from 35 percent to 21 percent, effective January 1, 2018. The Company has made a reasonable estimate of the effects of the Tax Act on existing deferred tax balances. These amounts are provisional and subject to change. The most significant impact of the legislation for the Company was a $2,050,000 reduction of the value of the Company’s net deferred tax assets (which represent future tax benefits). |
Earnings (Loss) Per Share | Earnings (Loss) Per Share Basic earnings (loss) per share of common stock are computed using the weighted average number of shares outstanding during each period. Diluted earnings per share are computed on the basis of the average number of common shares outstanding plus the dilutive effect of convertible debt, stock options and warrants. In periods of net loss, there are no diluted earnings per share since the result would be anti-dilutive. |
A. Organization and Business (T
A. Organization and Business (Tables) | 12 Months Ended |
May 31, 2017 | |
Organization And Business | |
Summary of balance sheet and income statement | Summarized balance sheet and income statement amounts for First Surety Corporation are as follows; FSC Balance Sheet As of May 31,2017 Total Assets $ 39,599,254 Total Liabilities 25,930,920 Total Equity 13,668,334 Total Liabilities and Equity $ 39,599,254 FSC Income Statement Year Ended May 31,2017 Total Revenue $ 2,459,801 Total Expenses (1,828,415 ) Net Income $ 631,386 |
C. Investments (Tables)
C. Investments (Tables) | 12 Months Ended |
May 31, 2017 | |
Investments And Fair Values Tables | |
Investments by security type classified as available-for-sale and carried at fair value | The Company held the following investments, by security type, that were classified as available-for-sale and carried at fair value at May 31, 2017: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value State and municipal securities $ 17,893,683 $ 71,906 $ 215,421 $ 17,750,168 Bond – US Treasuries 11,479,990 — 2,083 11,477,907 Equity securities 2,569,438 104,041 146,775 2,526,704 Derivatives (104,217 ) (9,745 ) (9,734 ) (104,228 ) Mortgage backed securities 4,260,730 68,904 11,064 4,318,570 $ 36,099,624 $ 235,106 $ 365,609 $ 35,969,121 The Company held the following investments, by security type, that have been classified as available-for-sale and carried at fair value at May 31, 2016: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses State and municipal securities $ 4,013,256 $ 64,789 $ 58,217 $ 4,019,828 Equity securities 1,628,713 91,339 155,299 1,564,753 Derivatives (78,497 ) (7,329 ) (9,513 ) (76,313 ) Mortgage backed securities 3,157,534 67,689 14,790 3,210,433 $ 8,721.006 $ 216,488 $ 218,793 $ 8,718,701 |
Assets measured at fair value on a recurring basis | Assets measured at fair value on a recurring basis are summarized below: May 31, 2017 Fair Value Measurements Using Level 1 Level 2 Level 3 Assets At Fair Value Fixed income securities at fair value $ — $ 33,546,645 $ — $ 33,546,645 Equity securities at fair value (includes derivatives) 2,422,476 — — 2,422,476 Short-term investments at fair value 1,857,601 — — 1,857,601 Total Assets $ 4,280,077 $ 33,546,645 $ — $ 37,826,722 May 31, 2016 Fair Value Measurements Using Level 1 Level 2 Level 3 Assets At Fair Value Fixed income securities at fair value $ — $ 7,230,261 $ — $ 7,230,261 Equity securities at fair value (includes derivatives) 1,488,440 — — 1,488,440 Short-term investments at fair value 197,752 — — 197,752 Total Assets $ 1,686,192 $ 7,230,261 $ — $ 8,916,453 |
Principal repayments and mortgage-backed securities | Principal repayments on U.S. government agency mortgage-backed securities held by the Company as of May 31, 2017 are estimated as follows: Amortized Cost Fair Value Due in one year or less $ 725,940 $ 730,887 Due after one year through five years 2,179,769 2,225,209 Due after five years through ten years 958,413 964,40 Due after ten years 396,608 398,068 $ 4,260,730 $ 4,318,570 |
Schedule of analysis of net investment income Table Text Block | An analysis of net investment income follows: 2017 2016 Bonds – fixed maturities $ 242,266 $ 154,300 Mortgage-backed securities 108,236 113,654 Equity investments 64,398 38,910 Short-term investments 1,070 151 Other investment income (loss) 113,001 (485,479 ) Total investment income (loss) 528,971 (178,464 ) Investment expense 35,142 36,918 Net investment income $ 493,829 $ (215,382 ) |
Schedule of changes in unrealized appreciation of investments Table Text Block | The unrealized appreciation (depreciation) of investments were as follows: 2017 2016 Bonds – US Treasury $ (2,082 ) $ — Bonds-fixed maturities (150,087 ) 46,790 Mortgage-backed securities 4,940 (32,089 ) Equity securities 19,032 (38,419 ) Increase (decrease) in unrealized appreciation $ (128,197 ) $ (23,718 ) |
Realized Gain (Loss) on Investments | Gains and losses are calculated based on sales proceeds received less the cost of the security sold, which is determined by specific identification for each investment. The gross gains and gross losses realized on available-for-sale securities were as follows: Gross Proceeds Gross Realized Gains Gross Realized Losses 2017 Bonds – US Treasury $ 17,000,000 $ — $ — Bonds-fixed maturities 4,778,067 79,561 24,831 Mortgage-backed securities — — — Equity securities 1,015,216 103,532 15,762 Derivatives (equity securities) 848,325 193,123 197,403 Total $ 23,641,608 $ 376,216 $ 237,99 2016 Bonds-fixed maturities $ 858,870 $ 6,346 $ 9,253 Mortgage-backed securities — — — Equity securities 391,758 8,965 36,135 Derivatives (equity securities) 598,984 113,407 162,390 Total $ 1,849,612 $ 128,718 $ 207,778 |
Unrealized Gain (Loss) on Investments | The following table summarizes the gross unrealized losses and fair value on investment securities aggregated by major investment category and length of time that individual securities have been in a continuous loss position at May 31, 2017 and May 31, 2016. Less than 12 Months 12 Months or More Total Cost (a) Unrealized Losses Cost (a) Unrealized Losses Fair Value Unrealized Losses 2017 Equity securities $ 1,004,585 $ 60,327 $ 301,525 $ 86,449 $ 1,159,335 $ 146,775 Bonds- Fixed Maturities 9,185,478 152,367 1,344,509 62,774 10,314,847 215,141 Mortgage-backed securities 1,686,199 10,291 134,742 773 1,820,941 11,064 Total $ 11,876,262 $ 222,985 $ 1,780,776 $ 149,995 $ 13,295,123 $ 372,980 2016 Equity securities $ 571,913 $ 80,340 $ 244,664 $ 74,960 $ 661,277 $ 155,300 Bonds- Fixed Maturities 493,941 10,003 2,004,819 48,214 2,440,543 58,217 Mortgage-backed securities 894,532 5,118 535,416 9,672 1,415,158 14,790 Total $ 1,960,386 $ 95,461 $ 2,784,899 $ 132,846 $ 4,516,978 $ 228,307 (a) For bonds-fixed maturities and mortgage-backed securities, represents amortized costs. |
D. Deferred Policy Acquisitio33
D. Deferred Policy Acquisition Costs (Tables) | 12 Months Ended |
May 31, 2017 | |
Deferred Policy Acquisition Costs Tables | |
Schedule Deferred Policy Acquisition Costs | The following reflects the policy acquisition costs deferred for amortization against future income and the related amortization charged to operations. 2017 2016 Balance at beginning of year $ 171,883 $ 154,978 Acquisition costs incurred 785,986 301,032 Amortization charged to operations (590,260 ) (284,127 ) Total $ 367,609 $ 171,883 |
G. Reserve for Losses and Los34
G. Reserve for Losses and Loss Expense (Tables) | 12 Months Ended |
May 31, 2017 | |
Reserve For Losses And Loss Expense Tables | |
Schedule of Reserve for Losses and Loss Expense | At May 31, 2017 and May 31, 2016, the reserve for losses and loss expenses consisted of: 2017 2016 Balance at beginning of year $ 2,491,479 $ 2,254,035 Incurred policy losses-current year 494,659 243,632 Incurred policy losses-prior year — 20,402 Paid policy losses – current year (7,597 ) (1,590 ) Paid policy losses-prior year — (25,000 ) Balance at end of year $ 2,978,541 $ 2,491,479 Reserve for anticipated salvage (456,620 ) (475,000 ) Ceded losses outstanding — (84,700 ) Balance at year end, net of reserve $ 2,521,921 1,931,779 |
H. Notes Payable (Tables)
H. Notes Payable (Tables) | 12 Months Ended |
May 31, 2017 | |
Notes Payable Tables | |
Schedule of unsecured notes payable Table Text Block | At May 31, 2017 and 2016, the Company had the following secured and unsecured notes payable to individuals: 2017 2016 Secured notes payable to individuals; interest rate fixed 8%; secured by 500 shares FSC stock (including $1,248,920 related party for 2017 and $1,387,573 for 2016) $ 4,169,072 $ 4,334,997 Secured notes payable to same individuals as above with same collateral; no interest; 235,784 235,000 Unsecured demand notes payable to individuals and others; no interest (including $75,000 related party in 2017 and $83,900 for 2016) 104,200 113,050 Unsecured demand notes payable to individuals and others; interest rate fixed 10% (including $75,000 to related party for 2017 and 2016) 1,548,372 1,506,859 Unsecured demand notes payable to individuals and others; interest rate fixed 12% 15,000 15,000 Unsecured demand note payable to individuals; interest rate fixed 14%; — 1,658 Secured demand note payable to individuals; interest rate fixed 10%; secured by accounts receivable for investment advisory fees 36,628 36,628 Unsecured demand note payable to individuals; interest rate fixed 2% (including $945,079 related party for 2017 and $785,000 for 2016) 1,045,079 885,000 Secured notes payable to individuals; interest rate fixed 10%; secured by shares FSC stock 249,250 249,250 Total $ 7,403,385 $ 7,377,442 |
Scheduled maturities Table Text Block | Scheduled maturities as of May 31, 2017 are as follows: Fiscal year 2017-2018 (including demand notes) $ 3,384,473 Fiscal year 2018-2019 (including demand notes) 208,387 Fiscal year 2019-2020 (including demand notes) 439,622 Fiscal year 2020-2021 (including demand notes) 512,495 Fiscal year 2021-2022 (including demand notes) 555,032 Thereafter 2,303,375 Total $ 7,403,384 |
O. Statutory Financial Data (Ta
O. Statutory Financial Data (Tables) | 12 Months Ended |
May 31, 2017 | |
Statutory surplus and insurance subsidiary for five months Period | |
Schedule of Statutory surplus and insurance subsidiary | Statutory capital and surplus as of May 31, 2017 and 2016, and net income for the Company’s insurance subsidiary for the calendar year ended December 31, 2016 and 2015 and five-month periods ended May 31, 2017 and 2016 are as follows: Statutory Capital and Surplus May 31, 2017 $ 13,485,339 Statutory Capital and Surplus May 31, 2016 $ 4,958,584 Net Income Calendar year 2016 ($ 113,636 ) Net Income Calendar year 2015 ($ 762,295 ) Net Income Five-month period 2017 $ 689,746 Net Income Five-month period 2016 $ 37,446 |
P. Commitments and Contingencie
P. Commitments and Contingencies (Tables) | 12 Months Ended |
May 31, 2017 | |
Commitments And Contingencies Tables | |
Schedule of Minimum future lease payments under non-cancelable operating leases | Minimum future lease payments under non-cancelable operating leases having remaining terms in excess of one year as of May 31, 2017 are: Fiscal year 2017-2018 $ 38,176 Fiscal year 2018-2019 38,604 Total $ 76,780 |
Q. Financial Instruments (Table
Q. Financial Instruments (Tables) | 12 Months Ended |
May 31, 2017 | |
Financial Instruments Tables | |
Fair values of the Company's financial instruments | The carrying amounts and fair values of the Company’s financial instruments at May 31, 2017 and 2016 are as follows: 2017 2016 Carrying Amount Fair Value Carrying Amount Fair Value ASSETS Bonds available for sale $ 33,634,402 $ 33,546,645 $ 7,170,789 $ 7,230,261 Cash and short-term investments 2,405,450 2,405,450 663,562 663,562 Premiums and other receivables 513,113 513,113 (76,413 ) (76,413 ) Equity securities (including derivatives) 2,465,221 2,422,476 1,550,217 1,488,440 LIABILITIES Notes payable 6,463,439 6,463,439 6,861,954 6,861,954 Accounts payable and advance premiums 388,771 388,771 414,787 414,787 Accrued expenses and other liabilities 23,936,898 23,936,898 3,274,094 3,274,094 |
R. Other Risks and Concentrat39
R. Other Risks and Concentrations (Tables) | 12 Months Ended |
May 31, 2017 | |
Other Risks And Concentrations Tables | |
Schedule of Concentration in Products, Markets and Customers | Furthermore, the Company provides surety bonds to companies that share common ownership interests that constitute 18% and 36% of the Company’s fiscal 2017 and 2016 revenues, respectively, as follows: 2017 2016 Surety Premium Investment Advisory Fees Surety Premium Investment Advisory Fees Customer group #1 $ 85,000 $ — $ 116,000 $ — Customer group #2 169,000 16,000 190,000 17,000 Customer group #3 175,000 3,000 180,000 3,000 Customer group #4 205,000 4,000 205,000 4,000 Total $ 634,000 $ 23,000 $ 691,000 $ 24,000 |
S. Segment Reporting (Tables)
S. Segment Reporting (Tables) | 12 Months Ended |
May 31, 2017 | |
Segment Reporting Tables | |
Revenue And Other Financial Information by Industry Segment | The following table presents revenue and other financial information by industry segment. Year Ended Industry Segment May 31, 2017 May 31, 2016 Revenues: Investment advisory $ 351,227 $ 506,373 Surety insurance 2,518,089 829,456 Corporate — — Total revenues $ 2,869,316 $ 1,335,829 Operating Income (Loss): Investment advisory $ (134,431 ) $ (49,976 ) Surety insurance 717,313 (1,678,551 ) Corporate (1,590,079 ) 468,785 Total operating income (loss) $ (1,007,197 ) $ (1,259,742 )) Identifiable Assets: Investment advisory $ 55,146 $ 43,129 Surety insurance 39,978,039 9,831,940 Corporate 2,109,740 1,483,127 Total assets $ 42,142,925 $ 11,358,196 Capital Acquisitions: Investment advisory $ 2,296 $ — Surety insurance 36,064 — Corporate 2,249 548 Total capital acquisitions $ 40,609 $ 548 Depreciation Charged to Identifiable Assets: Investment advisory $ 58 $ — Surety insurance 3,811 1,236 Corporate 729 15 Total Depreciation $ 4,598 $ 1,251 Interest Expense: Investment advisory $ 107 $ — Surety insurance 341,515 350,099 Corporate 233,349 564,999 Total interest expense $ 574,971 $ 915,098 |
U. Reinsurance (Tables)
U. Reinsurance (Tables) | 12 Months Ended |
May 31, 2017 | |
Reinsurance Tables | |
Reinsurance On Premium Written And Earned | The effects of reinsurance on premium written and earned for fiscal 2017 and 2016 are as follows; 2017 Written 2017 Earned 2016 Written 2016 Earned Direct $ 2,948,921 $ 2,283,329 $ 1,466,837 $ 1,407,905 Ceded 1,007,008 821,531 453,587 428,353 Net $ 1,941,913 $ 1,461,798 $ 1,013,250 $ 979,552 |
A. Organization and Business (D
A. Organization and Business (Details - Balance Sheet) - USD ($) | May 31, 2017 | May 31, 2016 | May 31, 2015 |
Total Assets | $ 42,470,142 | $ 12,305,497 | |
Total Liabilities | 44,938,919 | 23,640,986 | |
Total Equity | (4,716,066) | (13,495,091) | $ (13,521,028) |
Total Liabilities and Equity | 42,470,142 | $ 12,305,497 | |
FSC [Member] | |||
Total Assets | 39,599,254 | ||
Total Liabilities | 25,930,920 | ||
Total Equity | 13,668,334 | ||
Total Liabilities and Equity | $ 39,599,254 |
A. Organization and Business 43
A. Organization and Business (Details - Operation) - USD ($) | 5 Months Ended | 12 Months Ended | ||||
May 31, 2017 | May 31, 2016 | May 31, 2017 | Dec. 31, 2016 | May 31, 2016 | Dec. 31, 2015 | |
Total Revenue | $ 2,869,316 | $ 1,335,829 | ||||
Total Expenses | 2,361,596 | 1,907,319 | ||||
Net Income | $ 113,636 | $ 762,295 | (1,007,197) | $ 689,746 | $ (116,025) | $ 37,446 |
FSC [Member] | ||||||
Total Revenue | 2,459,801 | |||||
Total Expenses | (1,828,415) | |||||
Net Income | $ 631,386 |
A. Organization and Business 44
A. Organization and Business (Details Narrative) - USD ($) | May 31, 2017 | May 31, 2016 |
Organization And Business | ||
Allowance for estimated uncollectible accounts | $ 15,053 | $ 40,658 |
C. Investments (Details - Avail
C. Investments (Details - Available-for-sale and carried at fair value) - USD ($) | May 31, 2017 | May 31, 2016 |
Available-for-sale Securities | ||
Amortized Cost | $ 36,099,624 | $ 8,721 |
Gross Unrealized Gains | 235,106 | 216,488 |
Gross Unrealized Losses | 365,609 | 218,793 |
Fair Value | 35,969,121 | 8,718,701 |
State and Municipal Securities | ||
Available-for-sale Securities | ||
Amortized Cost | 17,893,683 | 4,013,256 |
Gross Unrealized Gains | 71,906 | 64,789 |
Gross Unrealized Losses | 215,421 | 58,217 |
Fair Value | 17,750,168 | 4,019,828 |
Bond - US Treasuries | ||
Available-for-sale Securities | ||
Amortized Cost | 11,479,990 | |
Gross Unrealized Gains | 0 | |
Gross Unrealized Losses | 2,083 | |
Fair Value | 11,477,907 | |
Equity Securities | ||
Available-for-sale Securities | ||
Amortized Cost | 2,569,438 | 1,628,713 |
Gross Unrealized Gains | 104,041 | 91,339 |
Gross Unrealized Losses | 146,775 | 155,299 |
Fair Value | 2,526,704 | 1,564,753 |
Derivatives | ||
Available-for-sale Securities | ||
Amortized Cost | (104,217) | (78,497) |
Gross Unrealized Gains | (9,745) | (7,329) |
Gross Unrealized Losses | (9,734) | (9,513) |
Fair Value | (104,228) | (76,313) |
Mortgage Backed Securities | ||
Available-for-sale Securities | ||
Amortized Cost | 4,260,730 | 3,157,534 |
Gross Unrealized Gains | 68,904 | 67,689 |
Gross Unrealized Losses | 11,064 | 14,790 |
Fair Value | $ 4,318,570 | $ 3,210,433 |
C. Investments (Details - Asse
C. Investments (Details - Assets measured at fair value on a recurring basis) - USD ($) | May 31, 2017 | May 31, 2016 |
Assets: | ||
Total Assets | $ 42,470,142 | $ 12,305,497 |
Fair Value, Measurements, Recurring [Member] | ||
Assets: | ||
Fixed income securities at fair value | 33,546,645 | 7,230,261 |
Equity securities at fair value (includes derivatives) | 2,422,476 | 1,488,440 |
Short-term investments at fair value | 1,857,601 | 197,752 |
Total Assets | 37,826,722 | 8,916,453 |
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | ||
Assets: | ||
Fixed income securities at fair value | 0 | 0 |
Equity securities at fair value (includes derivatives) | 2,422,476 | 1,488,440 |
Short-term investments at fair value | 1,857,601 | 197,752 |
Total Assets | 4,280,077 | 1,686,192 |
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | ||
Assets: | ||
Fixed income securities at fair value | 33,546,645 | 7,230,261 |
Equity securities at fair value (includes derivatives) | 0 | 0 |
Short-term investments at fair value | 0 | 0 |
Total Assets | 33,546,645 | 7,230,261 |
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | ||
Assets: | ||
Fixed income securities at fair value | 0 | 0 |
Equity securities at fair value (includes derivatives) | 0 | 0 |
Short-term investments at fair value | 0 | 0 |
Total Assets | $ 0 | $ 0 |
C. Investments (Details - Princ
C. Investments (Details - Principal repayments and mortgage-backed securities) - U.S. Government Agency Mortgage-Backed Securities [Member] | May 31, 2017USD ($) |
Amortized Cost | |
Due in one year or less | $ 725,940 |
Due after one year through five years | 2,179,769 |
Due after five years through ten years | 958,413 |
Due after ten years | 396,608 |
Net | 4,260,730 |
Fair Market Value | |
Due in one year or less | 730,887 |
Due after one year through five years | 2,225,209 |
Due after five years through ten years | 96,440 |
Due after ten years | 398,068 |
Net | $ 4,318,570 |
C. Investments (Details - Net i
C. Investments (Details - Net investment income) - USD ($) | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Total investment income | $ 528,971 | $ (178,464) |
Investment expense | 35,142 | 36,918 |
Net investment income | 493,829 | (215,382) |
Bonds - Fixed maturities | ||
Total investment income | 242,266 | 154,300 |
Mortgage Backed Securities | ||
Total investment income | 108,236 | 113,654 |
Equity Securities | ||
Total investment income | 64,398 | 38,910 |
Short-term Investments | ||
Total investment income | 1,070 | 151 |
Other Investments | ||
Total investment income | $ 113,001 | $ (485,479) |
C. Investments (Details - Chang
C. Investments (Details - Changes in unrealized appreciation of investments ) - USD ($) | May 31, 2017 | May 31, 2016 |
Increase (decrease) in unrealized appreciation | $ (128,197) | $ (23,718) |
Bonds - US Treasury | ||
Increase (decrease) in unrealized appreciation | (2,082) | 0 |
Bonds - Fixed maturities | ||
Increase (decrease) in unrealized appreciation | (150,087) | 46,790 |
Mortgage Backed Securities | ||
Increase (decrease) in unrealized appreciation | 4,940 | (32,089) |
Equity Securities | ||
Increase (decrease) in unrealized appreciation | $ 19,032 | $ (38,419) |
C. Investments (Details - Real
C. Investments (Details - Realized Gain (Loss) on Investments) - USD ($) | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Gross Proceeds | $ 23,641,608 | $ 1,849,612 |
Gross Realized Gains | 376,216 | 128,718 |
Gross Realized Losses | 23,799 | 207,778 |
Bonds - US Treasury | ||
Gross Proceeds | 17,000,000 | |
Gross Realized Gains | 0 | |
Gross Realized Losses | 0 | |
Bonds - Fixed maturities | ||
Gross Proceeds | 4,778,067 | 858,870 |
Gross Realized Gains | 79,561 | 6,346 |
Gross Realized Losses | 24,831 | 9,253 |
Mortgage Backed Securities | ||
Gross Proceeds | 0 | 0 |
Gross Realized Gains | 0 | 0 |
Gross Realized Losses | 0 | 0 |
Equity Securities | ||
Gross Proceeds | 1,015,216 | 391,758 |
Gross Realized Gains | 103,532 | 8,965 |
Gross Realized Losses | 15,762 | 36,135 |
Derivatives | ||
Gross Proceeds | 848,325 | 598,984 |
Gross Realized Gains | 193,123 | 113,407 |
Gross Realized Losses | $ 197,403 | $ 162,390 |
C. Investments (Details - Unre
C. Investments (Details - Unrealized Gain (Loss) on Investments) - USD ($) | 12 Months Ended | ||
May 31, 2017 | May 31, 2016 | ||
Less Than 12 Months, Fair Value | $ 11,876,262 | $ 1,960,386 | |
Less Than 12 Months, Unrealized Losses | 222,985 | 95,461 | |
12 Months Or Longer, Fair Value | 1,780,776 | 2,784,899 | |
12 Months Or Longer, Unrealized Losses | 149,995 | 132,846 | |
Total Fair Value | 13,295,123 | 4,516,978 | |
Total Unrealized Losses | 372,980 | 228,307 | |
Equity Securities | |||
Less Than 12 Months, Fair Value | [1] | 1,004,585 | 571,913 |
Less Than 12 Months, Unrealized Losses | [1] | 60,327 | 80,340 |
12 Months Or Longer, Fair Value | 301,525 | 244,664 | |
12 Months Or Longer, Unrealized Losses | 86,449 | 74,960 | |
Total Fair Value | 1,159,335 | 661,277 | |
Total Unrealized Losses | 146,775 | 155,300 | |
Bonds - Fixed maturities | |||
Less Than 12 Months, Fair Value | [1] | 9,185,478 | 493,941 |
Less Than 12 Months, Unrealized Losses | [1] | 152,367 | 10,003 |
12 Months Or Longer, Fair Value | 1,344,509 | 2,004,819 | |
12 Months Or Longer, Unrealized Losses | 62,774 | 48,214 | |
Total Fair Value | 10,314,847 | 2,440,543 | |
Total Unrealized Losses | 215,141 | 58,217 | |
Mortgage Backed Securities | |||
Less Than 12 Months, Fair Value | [1] | 1,686,199 | 894,532 |
Less Than 12 Months, Unrealized Losses | [1] | 10,291 | 5,118 |
12 Months Or Longer, Fair Value | 134,742 | 535,416 | |
12 Months Or Longer, Unrealized Losses | 773 | 9,672 | |
Total Fair Value | 1,820,941 | 1,415,158 | |
Total Unrealized Losses | $ 11,064 | $ 14,790 | |
[1] | For bonds-fixed maturities and mortgage-backed securities, represents amortized costs. |
C. Investments (Details Narrati
C. Investments (Details Narrative) - USD ($) | May 31, 2017 | May 31, 2016 |
Investments Details Narrative | ||
Short term investments | $ 21,926,872 | $ 2,068,192 |
Investments and cash | $ 38,374,571 | 9,384,909 |
Securities and short-term investment | $ 1,153,324 |
D. Deferred Policy Acquisitio53
D. Deferred Policy Acquisition Costs (Details) - USD ($) | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Deferred Policy Acquisition Costs Details | ||
Balance at beginning of year | $ 171,883 | $ 154,978 |
Acquisition costs incurred | 785,986 | 301,032 |
Amortization charged to operations | (590,260) | (284,127) |
Total | $ 367,609 | $ 171,883 |
E. Other Assets (Details)
E. Other Assets (Details) - USD ($) | May 31, 2017 | May 31, 2016 |
Other Assets Details | ||
Other assets | $ 16,780 | $ 14,617 |
F. Intangibles (Details Narrati
F. Intangibles (Details Narrative) - FSC [Member] | Dec. 30, 2005USD ($) |
Purchase Price of Company | $ 2,900,000 |
Cash and Investment | $ 2,750,000 |
G. Reserve for Losses and Los56
G. Reserve for Losses and Loss Expense (Details) - USD ($) | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Reserve For Losses And Loss Expense Details | ||
Balance at beginning of year | $ 2,491,479 | $ 2,254,035 |
Incurred policy losses - current year | 494,659 | 243,632 |
Incurred policy losses - prior year | 0 | 20,402 |
Paid policy losses - current year | (7,597) | (1,590) |
Paid policy losses - prior year | 0 | (25,000) |
Balance at ending of year | 2,978,541 | 2,491,479 |
Reserve for anticipated salvage | (456,620) | (475,000) |
Ceded losses outstanding | 0 | (84,700) |
Balance at year end, net of reserve | $ 2,521,921 | $ 1,931,779 |
G. Reserve for Losses and Los57
G. Reserve for Losses and Loss Expense (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Reserve For Losses And Loss Expense | ||
Recovery of salvage on claim | $ 3,000 | |
Loss on adjustment expenses | $ 7,597 | $ 26,590 |
H. Notes Payable (Details - Sec
H. Notes Payable (Details - Secured and unsecured notes payable) - USD ($) | May 31, 2017 | May 31, 2016 |
Total Notes payable | $ 7,403,385 | $ 7,377,442 |
Related party debt | 124,323 | 124,723 |
Secured notes payable [Member] | ||
Total Notes payable | $ 4,169,072 | $ 4,334,997 |
Interest Rates | 8.00% | 8.00% |
Related party debt | $ 1,248,920 | $ 1,387,573 |
Secured Notes Payable 2 [Member] | ||
Total Notes payable | 235,784 | 235,000 |
Unsecured demand notes payable [Member] | ||
Total Notes payable | 104,200 | 113,050 |
Related party debt | 75,000 | 83,900 |
Unsecured demand notes payable 2 [Member] | ||
Total Notes payable | $ 1,548,372 | $ 1,506,859 |
Interest Rates | 10.00% | 10.00% |
Related party debt | $ 75,000 | $ 75,000 |
Unsecured demand notes payable 3 [Member] | ||
Total Notes payable | $ 15,000 | $ 15,000 |
Interest Rates | 12.00% | 12.00% |
Unsecured demand notes payable 4 [Member] | ||
Total Notes payable | $ 0 | $ 1,658 |
Interest Rates | 14.00% | 14.00% |
Secured demand note payable [Member] | ||
Total Notes payable | $ 36,628 | $ 36,628 |
Interest Rates | 10.00% | 10.00% |
Unsecured demand notes payable 5 [Member] | ||
Total Notes payable | $ 1,045,079 | $ 885,000 |
Interest Rates | 2.00% | 2.00% |
Related party debt | $ 945,079 | $ 785,000 |
Secured Notes Payable 3 [Member] | ||
Total Notes payable | $ 249,250 | $ 249,250 |
Interest Rates | 10.00% | 10.00% |
H. Notes Payable (Details - Mat
H. Notes Payable (Details - Maturities) | May 31, 2017USD ($) |
Notes Payable Details 2 | |
Fiscal year 2017-2018 (including demand notes) | $ 3,384,473 |
Fiscal year 2018-2019 (including demand notes) | 208,387 |
Fiscal year 2019-2020 (including demand notes) | 439,622 |
Fiscal year 2020-2021 (including demand notes) | 512,495 |
Fiscal year 2021-2022 (including demand notes) | 555,032 |
Thereafter | 2,303,375 |
Total | $ 7,403,384 |
H. Notes Payable (Details Narra
H. Notes Payable (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Advances from related party | $ 599,452 | $ 1,957,658 |
Accrued related party interest payable | 31,853 | 24,073 |
Gain from forgiven principal of extinguishment of debt | 125,000 | |
Interest extinguishment of debt | 1,795,000 | |
Gain on debt extinguishment | 0 | 1,919,532 |
Board [Member] | ||
Advances from related party | 75,000 | |
Individual [Member] | ||
Accrued related party interest payable | 5,000 | |
Interest expense | 0 | $ 3,068 |
Demand notes to related party | 1,020,079 | |
Accrued interest | 26,853 | |
Secured notes payable | $ 1,248,920 |
I. Other Liabilities (Details N
I. Other Liabilities (Details Narrative) - USD ($) | May 31, 2017 | May 31, 2016 |
Amount held for collateral for its surety bonding program | $ 21,926,872 | $ 2,068,192 |
Federal Tax [Member] | ||
Accured Payroll Taxes | 172,000 | 31,000 |
Estimated Penalties and interest | 32,000 | 31,000 |
West Virginia Tax [Member] | ||
Accured Payroll Taxes | 73,000 | 44,000 |
Estimated Penalties and interest | $ 17,000 | $ 7,000 |
J. Preferred Stock (Details Nar
J. Preferred Stock (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Accrued dividends | $ 357,656 | $ 108,386 |
Charge to common stockholders credit to the equity of equity preferred stock | 1,256,829 | $ 1,164,143 |
Mandatorily Redeemable Preferred B Stock [Member] | ||
Deduction from net income of dividends | $ 522,099 | |
Series A Preferred Stock [Member] | ||
Redemption of shares | 1,026 | |
Redemption of shares, Amount | $ 1,598,043 | |
Deduction from net income of dividends | 67,847 | |
Defer payment of dividends | 1,311,080 | |
Series B Preferred Stock [Member] | ||
Defer payment of dividends | 4,038,772 | |
Series C Preferred Stock [Member] | ||
Defer payment of dividends | $ 9,698,738 |
K. Stock Warrants (Details Narr
K. Stock Warrants (Details Narrative) - USD ($) | Dec. 30, 2015 | Dec. 30, 2012 | Dec. 30, 2005 | May 31, 2017 | May 31, 2016 | Dec. 30, 2008 |
Common Stock Purchased | $ 45,402,996 | $ 38,071 | $ 37,991 | |||
Exercise Price | $ 0.001 | |||||
Series A Preferred Stock [Member] | ||||||
Preferred Stock, Par Value | $ .0001 | $ .0001 | $ 0.08 | |||
Preferred Stock Value | $ 83,043 | |||||
Warrant Expired | 600,000 | |||||
Series B Preferred Stock [Member] | ||||||
Preferred Stock, Par Value | $ .0001 | $ .0001 | $ 0.01 | |||
Preferred Stock Value | $ 449,972 | |||||
Warrant Expired | 386,667 |
L. Stock Based Compensation (De
L. Stock Based Compensation (Details Narrative) - $ / shares | May 31, 2017 | May 31, 2016 | Jun. 30, 2009 | Dec. 28, 2006 |
Stock Based Compensation Options Consists Details | ||||
Common Stock Issued, Shares | 385,892,203 | 385,092,203 | 2,100,000 | |
Common Stock Par Value | $ 0.0001 | $ 0.0001 | $ 0.04 | |
Awarded Incentive Stock Options | 10,000,000 | |||
Exercise price Per Share of awarded stock options | $ 0.04 |
M. Income Taxes (Details Narrat
M. Income Taxes (Details Narrative) | May 31, 2017USD ($) |
Income Taxes Details Narrative | |
Operating loss carry forwards | $ 14,200,000 |
Valuation allowance | $ 3,300,000 |
N. Stockholders' Equity (Detail
N. Stockholders' Equity (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2016 | May 31, 2017 | |
Stockholders Equity Details Narrative | ||
Common stock shares issued additional consideration | 1,878,000 | 300,000 |
Common stock shares value issued additional consideration | $ 1,878,000 | $ 75,000 |
Avergage quoted closing price per share issued | $ .002887 | $ .002520 |
Value of Common stock issued | $ 5,422 | $ 756 |
Common stock shares issued | 2,500,000 | 500,000 |
Additional percentage of stock dividend | 25.00% | 5.00% |
Avergage quoted closing price per share issued | $ .002566 | $ .002705 |
Value of Common stock issued | $ 6,415 | $ 1,353 |
Common stock issued in connection with the additional stock dividend | 11,956,049 | |
Stock price per share | $ .003208 | |
Proceeds from stock issued in connection with the additional stock dividend | $ 38,352 |
O. Statutory Financial Data (De
O. Statutory Financial Data (Details) - USD ($) | 5 Months Ended | 12 Months Ended | ||||
May 31, 2017 | May 31, 2016 | May 31, 2017 | Dec. 31, 2016 | May 31, 2016 | Dec. 31, 2015 | |
Statutory Financial Data Details | ||||||
Statutory Capital and Surplus | $ 13,485,339 | $ 4,958,584 | $ 13,485,339 | $ 4,958,584 | ||
Net Income | $ 113,636 | $ 762,295 | $ (1,007,197) | $ 689,746 | $ (116,025) | $ 37,446 |
P. Commitments Contingencies (D
P. Commitments Contingencies (Details) | May 31, 2017USD ($) |
Commitments Contingencies Details | |
Fiscal year 2017-2018 | $ 38,176 |
Fiscal year 2018-2019 | 38,604 |
Minimum future lease payments total | $ 76,780 |
P. Commitments and Contingenc69
P. Commitments and Contingencies (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Commitments And Contingencies | ||
Rental expense | $ 43,321 | $ 45,086 |
Q. Financial Instruments (Detai
Q. Financial Instruments (Details) - USD ($) | May 31, 2017 | May 31, 2016 |
ASSETS | ||
Bonds available for sale | $ 33,634,403 | $ 7,170,789 |
Premiums and other receivables | 540,775 | 291,856 |
Equity securities (including derivatives) | 2,465,221 | 1,550,217 |
LIABILITIES | ||
Notes payable | 5,059,385 | 5,045,969 |
Carrying Amount [Member] | ||
ASSETS | ||
Bonds available for sale | 33,634,402 | 7,170,789 |
Cash and short-term investments | 2,405,450 | 663,562 |
Premiums and other receivables | 513,113 | (76,413) |
Equity securities (including derivatives) | 2,465,221 | 1,550,217 |
LIABILITIES | ||
Notes payable | 6,463,439 | 6,861,954 |
Accounts payable and advance premiums | 388,771 | 414,787 |
Accrued expenses and other liabilities | 23,936,898 | 3,274,094 |
Fair Value, Measurements, Recurring [Member] | ||
ASSETS | ||
Bonds available for sale | 33,546,645 | 7,230,261 |
Cash and short-term investments | 2,405,450 | 663,562 |
Premiums and other receivables | 513,113 | (76,413) |
Equity securities (including derivatives) | 2,422,476 | 1,488,440 |
LIABILITIES | ||
Notes payable | 6,463,439 | 6,861,954 |
Accounts payable and advance premiums | 388,771 | 414,787 |
Accrued expenses and other liabilities | $ 23,936,898 | $ 3,274,094 |
R. Other Risks and Concentrat71
R. Other Risks and Concentrations (Details) - USD ($) | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Investment Advisory Fees | $ 81,918 | $ 109,194 |
Customer Group 1 [Member] | ||
Surety Premium | 85,000 | 116,000 |
Investment Advisory Fees | 0 | 0 |
Customer Group 2 [Member] | ||
Surety Premium | 169,000 | 190,000 |
Investment Advisory Fees | 16,000 | 17,000 |
Customer Group 3 [Member] | ||
Surety Premium | 175,000 | 180,000 |
Investment Advisory Fees | 3,000 | 3,000 |
Customer Group 4 [Member] | ||
Surety Premium | 205,000 | 205,000 |
Investment Advisory Fees | 4,000 | 4,000 |
Customer [Member] | ||
Surety Premium | 634,000 | 691,000 |
Investment Advisory Fees | $ 23,000 | $ 24,000 |
S. Segment Reporting (Details)
S. Segment Reporting (Details) - USD ($) | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Total Revenues | $ 2,869,316 | $ 1,335,829 |
Total operating income (loss) | 507,720 | (571,490) |
Total Identifiable assets | 42,470,142 | 12,305,497 |
Total Depreciation | 4,598 | 1,251 |
Total interest expense | 574,971 | 915,098 |
Industry Segment | ||
Total Revenues | 2,869,316 | 1,335,829 |
Total operating income (loss) | (1,007,197) | (1,259,742) |
Total Identifiable assets | 42,142,925 | 11,358,196 |
Total capital acquisitions | 40,609 | 548 |
Total Depreciation | 4,598 | 1,251 |
Total interest expense | 574,971 | 915,098 |
Industry Segment | Investment Advisory | ||
Total Revenues | 351,227 | 506,373 |
Total operating income (loss) | (134,431) | (49,976) |
Total Identifiable assets | 55,146 | 43,129 |
Total capital acquisitions | 2,296 | 0 |
Total Depreciation | 58 | 0 |
Total interest expense | 107 | 0 |
Industry Segment | Surety Insurance | ||
Total Revenues | 2,518,089 | 829,456 |
Total operating income (loss) | 717,313 | (1,678,551) |
Total Identifiable assets | 39,978,039 | 9,831,940 |
Total capital acquisitions | 36,064 | 0 |
Total Depreciation | 3,811 | 1,236 |
Total interest expense | 341,515 | 350,099 |
Industry Segment | Corporate | ||
Total Revenues | 0 | 0 |
Total operating income (loss) | (1,590,079) | 468,785 |
Total Identifiable assets | 2,109,740 | 1,483,127 |
Total capital acquisitions | 2,249 | 548 |
Total Depreciation | 729 | 15 |
Total interest expense | $ 233,349 | $ 564,999 |
T. Related Party Transactions (
T. Related Party Transactions (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Advances from related party | $ 599,452 | $ 1,957,658 |
Repayment of related party debt | 1,011,383 | 971,207 |
Interest expense | 122,766 | 124,444 |
Interest income | 83,894 | 75,168 |
CEO Member | ||
Advances from related party | 359,298 | 1,088,758 |
Repayment of related party debt | 783,755 | 971,207 |
Due from related party | 939,945 | 515,488 |
Aggregate amount outstanding from related party | $ 955,646 | $ 549,143 |
Rate of interest and obligations due | 6.00% | 12.00% |
Board [Member] | ||
Consulting services | $ 66,100 | $ 62,100 |
Related party payables | 124,323 | $ 124,723 |
Demand notes to related party | 75,000 | |
Accrued interest | 5,000 | |
Individual [Member] | ||
Demand notes to related party | 1,020,079 | |
Accrued interest | 26,853 | |
Secured notes payable | $ 1,248,920 |
U. Reinsurance (Details)
U. Reinsurance (Details) - USD ($) | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Premium Written | ||
Direct | $ 2,948,921 | $ 1,466,837 |
Ceded | 1,007,008 | 453,587 |
Net | 1,941,913 | 1,013,250 |
Earned: | ||
Direct | 2,283,329 | 1,407,905 |
Ceded | 821,531 | 428,353 |
Net | $ 1,461,798 | $ 979,552 |
U. Reinsurance (Details Narrati
U. Reinsurance (Details Narrative) - USD ($) | May 31, 2017 | May 31, 2016 |
Reinsurance Agreement: | ||
Prepaid reinsurance premium | $ 418,124 | $ 232,647 |