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EX-31 - EXHIBIT 31.1 - REGAN HOLDING CORP | p20681ex311.htm |
EX-31 - EXHIBIT 31.2 - REGAN HOLDING CORP | p20681ex312.htm |
EX-32 - EXHIBIT 32.1 - REGAN HOLDING CORP | p20681ex321.htm |
EX-32 - EXHIBIT 32.2 - REGAN HOLDING CORP | p20681ex322.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 2)
(Mark One)
[X]
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2009
or
[ ]
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____________ to ____________
Commission File Number: 0-19704
REGAN HOLDING CORP.
(Exact name of registrant as specified in its charter)
California 68-0211359 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2090 Marina Avenue, Petaluma, CA 94954 (Address of principal executive offices) (Zip Code) 707-778-8638 (Registrants telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).
Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of October 16, 2009, there were 23,525,000 shares of Common Stock-Series A outstanding and 550,000 shares of Common Stock-Series B outstanding.
Explanatory Note
This Amendment No. 2 on Form 10-Q/A amends in full the Quarterly Report on Form 10-Q of Regan Holding Corp. (the Company, we, our, us) for the quarter ended March 31, 2009, as amended by Form 10-Q/A (Amendment No. 1), filed with the Securities and Exchange Commission (the "SEC") on May 15, 2009 and June 1, 2009, respectively. The Company is filing this Amendment No. 2 for the purpose stated below:
a) | On June 1, 2009, the Company filed a 10-Q/A (Amendment No. 1) to file as exhibits the management certifications required by Rule 13a-14(a) and 18 U.S.C. Section 1350 that were inadvertently omitted from the Companys 10-Q for the quarter ended March 31, 2009, filed on May 15, 2009. Amendment No. 1 on Form 10-Q/A did not include a full amendment of the Companys previously filed 10-Q. This Amendment No. 2 on Form 10-Q/A restates the Companys 10-Q in full. In addition, the management certifications provided pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended , have been modified to include the internal control over financial reporting language as required by Item 601(b)(31) of Regulation S-K. |
This Amendment No. 2 does not modify or update any other disclosures set forth in our Form 10-Q for the quarter ended March 31, 2009, except as required to reflect the additional information mentioned above. Additionally, this Amendment No. 2 does not update or discuss any other Company developments subsequent to the date of the Form 10-Q for the quarter ended March 31, 2009.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheet
March 31, | December 31, | ||||||||
2009 | 2008 | ||||||||
(Unaudited) | |||||||||
Assets | |||||||||
Cash and cash equivalents | $ | 521,000 | $ | 628,000 | |||||
Trading investments | 214,000 | 641,000 | |||||||
Accounts receivable, net of allowance of $15,000 and $0, at | |||||||||
March 31, 2009 and December 31, 2008, respectively | 476,000 | 447,000 | |||||||
Notes receivable, net of allowance of $20,000 at March 31, 2009 | |||||||||
and December 31, 2008, respectively | 126,000 | 175,000 | |||||||
Prepaid expenses and deposits | 186,000 | 146,000 | |||||||
Current assets from discontinued operations | 299,000 | 322,000 | |||||||
Total current assets | 1,822,000 | 2,359,000 | |||||||
Net fixed assets | 921,000 | 1,655,000 | |||||||
Building lease deposit | 1,000,000 | 1,000,000 | |||||||
Other assets | 19,000 | 32,000 | |||||||
Total non-current assets | 1,940,000 | 2,687,000 | |||||||
Total assets | $ | 3,762,000 | $ | 5,046,000 | |||||
Liabilities, redeemable common stock, and shareholders' deficit | |||||||||
Liabilities | |||||||||
Accounts payable and accrued liabilities | $ | 2,322,000 | $ | 3,808,000 | |||||
Current portion of capital lease liabilities | 82,000 | 69,000 | |||||||
Short-term borrowings | 233,000 | 230,000 | |||||||
Current liabilities from discontinued operations | 395,000 | 398,000 | |||||||
Total current liabilities | 3,032,000 | 4,505,000 | |||||||
Deferred compensation payable | 4,813,000 | 5,314,000 | |||||||
Deferred gain on sale of building | 1,814,000 | 1,882,000 | |||||||
Capital lease liabilities, less current portion | 120,000 | 64,000 | |||||||
Other liabilities | 120,000 | 134,000 | |||||||
Total non-current liabilities | 6,867,000 | 7,394,000 | |||||||
Total liabilities | 9,899,000 | 11,899,000 | |||||||
Redeemable common stock, Series A and B | 5,897,000 | 5,897,000 | |||||||
Shareholders' deficit | |||||||||
Preferred stock, no par value: Authorized: 100,000,000 shares; | |||||||||
No shares issued or outstanding | - | - | |||||||
Series A common stock, no par value: | |||||||||
Authorized: 45,000,000 shares; issued and outstanding: 20,959,000 | |||||||||
shares at March 31, 2009 and December 31, 2008, respectively | 3,921,000 | 3,921,000 | |||||||
Paid-in capital | 6,650,000 | 6,650,000 | |||||||
Accumulated deficit | (22,605,000) | (23,321,000) | |||||||
Total shareholders' deficit | (12,034,000) | (12,750,000) | |||||||
Total liabilities, redeemable common stock, and shareholders' deficit | $ | 3,762,000 | $ | 5,046,000 | |||||
See notes to financial statements
3
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
For the Three Months Ended | ||||||||||
March 31, | ||||||||||
2009 | 2008 | |||||||||
Revenue | ||||||||||
Marketing allowances and commission overrides | $ | 2,975,000 | $ | 1,763,000 | ||||||
Trailing commissions | 174,000 | 705,000 | ||||||||
Sale of Legacy TM, LP Class B interest | - | 6,500,000 | ||||||||
Other revenue | 1,047,000 | 1,130,000 | ||||||||
Total revenue | 4,196,000 | 10,098,000 | ||||||||
Expenses | ||||||||||
Selling, general and administrative | 2,356,000 | 3,980,000 | ||||||||
Depreciation and amortization | 839,000 | 1,025,000 | ||||||||
Other | 179,000 | 305,000 | ||||||||
Total expenses | 3,374,000 | 5,310,000 | ||||||||
Operating income | 822,000 | 4,788,000 | ||||||||
Other income | ||||||||||
Investment income, net | 5,000 | 38,000 | ||||||||
Interest expense | (3,000) | (310,000) | ||||||||
Total other income (expense), net | 2,000 | (272,000) | ||||||||
Income before income taxes | 824,000 | 4,516,000 | ||||||||
Provision for income taxes | 70,000 | 136,000 | ||||||||
Income from continuing operations | 754,000 | 4,380,000 | ||||||||
Discontinued operations | ||||||||||
Loss from operation of discontinued segments Values | ||||||||||
Financial Network, Inc., Legacy Financial Services | ||||||||||
and prospectdigital | (44,000) | (239,000) | ||||||||
Benefit from income taxes | (6,000) | (8,000) | ||||||||
Loss from discontinued operations | (38,000) | (231,000) | ||||||||
Net income available for common shareholders | $ | 716,000 | $ | 4,149,000 | ||||||
Basic net income per share: | ||||||||||
Income from continuing operations | $ | 0.03 | $ | 0.18 | ||||||
Net income available for common shareholders | $ | 0.03 | $ | 0.17 | ||||||
Weighted average shares outstanding used to compute | ||||||||||
basic and diluted net income per share amounts | 24,076,000 | 24,076,000 |
See notes to financial statements
4
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statement of Shareholders Deficit
(Unaudited)
Series A Common Stock | Paid-in | Accumulated | |||||||||||||
Shares | Amount | Capital | Deficit | Total | |||||||||||
Balance December 31, 2008 | 20,959,000 | $ | 3,921,000 | $ | 6,650,000 | $ | (23,321,000) | $ | (12,750,000) | ||||||
Net income | 716,000 | 716,000 | |||||||||||||
Balance March 31, 2009 (unaudited) | 20,959,000 | $ | 3,921,000 | $ | 6,650,000 | $ | (22,605,000) | $ | (12,034,000) |
See notes to financial statements
5
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
For the Three Months Ended | ||||||||||
March 31, | ||||||||||
2009 | 2008 | |||||||||
Cash flows from operating activities: | ||||||||||
Net income | $ | 716,000 | $ | 4,149,000 | ||||||
Adjustments to reconcile net income: | ||||||||||
Depreciation and amortization | 839,000 | 1,025,000 | ||||||||
Amortization of deferred gain on sale of building | (68,000) | (69,000) | ||||||||
Increase in allowance for doubtful accounts | 15,000 | 11,000 | ||||||||
Losses on trading securities, net | - | 318,000 | ||||||||
Changes in operating assets and libilities | ||||||||||
Sales of trading securities, net | 427,000 | 259,000 | ||||||||
Accounts receivable | (44,000) | 283,000 | ||||||||
Prepaid expenses and deposits | (40,000) | (61,000) | ||||||||
Accounts payable and accrued liabilities | (1,486,000) | 318,000 | ||||||||
Deferred compensation payable | (501,000) | (602,000) | ||||||||
Other operating assets and liabilities | (1,000) | 203,000 | ||||||||
Current assets and liabilities of discontinued operations | 20,000 | - | ||||||||
Net cash (used in) provided by operating activities: | (123,000) | 5,834,000 | ||||||||
Cash flows from investing activities: | ||||||||||
Purchases of fixed assets | (21,000) | (17,000) | ||||||||
Repayments of notes receivable, net | 49,000 | 1,000 | ||||||||
Decrease in temporarily restricted cash | - | 302,000 | ||||||||
Net cash provided by investing activities: | 28,000 | 286,000 | ||||||||
Cash flows from financing activities: | ||||||||||
Proceeds from loans payable | - | 173,000 | ||||||||
Payments of capital lease obligations and notes payable | (12,000) | (6,022,000) | ||||||||
Net cash used in financing activities: | (12,000) | (5,849,000) | ||||||||
Net (decrease) increase in cash and cash equivalents | (107,000) | 271,000 | ||||||||
Cash and cash equivalents, beginning of period | 628,000 | 152,000 | ||||||||
Cash and cash equivalents, end of period | $ | 521,000 | $ | 423,000 | ||||||
Supplemental cash flow disclosures: | ||||||||||
Income taxes paid | $ | 124,000 | $ | - | ||||||
Interest paid | - | 229,000 | ||||||||
Supplemental non-cash investing and financing activities: | ||||||||||
Equipment obtained under capital lease agreements | 84,000 | - |
See notes to financial statements
6
REGAN HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1.
Basis of Presentation
The accompanying Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America and include the accounts of Regan Holding Corp. (the Company) and its wholly owned subsidiaries. All intercompany transactions have been eliminated.
The Consolidated Financial Statements are unaudited but reflect all adjustments, consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the Companys consolidated financial position and results of operations. The results for the three months ended March 31, 2009, are not necessarily indicative of the results to be expected for the entire year. These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the Companys Annual Report for the year ended December 31, 2008, as filed on Forms 10-K and 10-K/A with the Securities and Exchange Commission on March 31, 2009, and April 30, 2009, respectively.
2.
Net Income per Share
For the Three Months Ended | ||||||||
March 31, | ||||||||
2009 | 2008 | |||||||
Income from continuing operations | $ | 754,000 | $ | 4,380,000 | ||||
Loss from discontinued operations | (38,000) | (231,000) | ||||||
Net income available for common shareholders | $ | 716,000 | $ | 4,149,000 | ||||
Weighted average shares used to compute basic net | ||||||||
income per share | 24,076,000 | 24,076,000 | ||||||
Effect of dilutive securitiesemployee and | ||||||||
producer stock options | - | - | ||||||
Weighted average shares used to compute diluted | ||||||||
net income per share | 24,076,000 | 24,076,000 | ||||||
Basic net income per share: | ||||||||
Income from continuing operations | $ | 0.03 | $ | 0.18 | ||||
Net income available for common shareholders | $ | 0.03 | $ | 0.17 | ||||
Diluted net income per share: | ||||||||
Income from continuing operations | $ | 0.03 | $ | 0.18 | ||||
Net income available for common shareholders | $ | 0.03 | $ | 0.17 |
Outstanding and exercisable options to purchase 1.9 million and 2.4 million shares of the Companys common stock were excluded from the computation of diluted net income per share during the periods ended March 31, 2009 and 2008, respectively, as the options were not in-the-money.
3.
Sale of Assets
On March 26, 2008, the Company entered into an agreement to sell certain of its asset based trailing commissions (trail commissions) to Legacy TM, a limited partnership (the Partnership), for $6.5 million in cash and an interest in the limited partnership. The transaction closed on March 26, 2008. As a portion of the consideration for the trail commissions, the Partnership issued to Legacy Marketing a Class A limited partnership interest in the Partnership that includes the beneficial interest in 33 1/3% of the trail commission revenue received on those policies in effect on or prior to the closing date for the one year period subsequent to the closing date and all revenue associated with policies that become effective after the closing date. The Companys limited partnership interest is unencumbered. Lynda Pitts, Chief Executive Officer, and Preston Pitts, President, Chief Operating Officer and Chief Financial Officer of the
7
Company, each of whom is also a director of the Company, are the general partners of the Partnership and together own all of the Class B interests in the Partnership.
A special committee of the Board of Directors of the Company comprising the independent directors, Ute Scott-Smith, J. Daniel Speight, Jr and Dr. Donald Ratajczak, approved the amount of consideration. In connection with the committees deliberations the Company obtained a fairness opinion from an independent third party stating that the total value of the transaction to the Company was within an acceptable range of estimated fair values of the future trail commission cash flows. A portion of the proceeds was used to pay the $6 million note payable to Washington National Insurance Company and interest accrued thereon, and the remainder of the proceeds was used for general corporate purposes.
On May 23, 2008, the Company sold its office building in Rome, Georgia for $3.5 million for a gain of $214,000. Proceeds from the sale of the building were used to repay the mortgage on the property, the outstanding balance of which was $2.6 million.
4.
Income Taxes
The rate of provision for income taxes for the three months ended March 31, 2009 and 2008, differs from the federal and state statutory rate primarily due to the expected utilization of federal net operating loss carryforwards in 2009 and the expected utilization of federal and state net operating loss carryforwards in 2008.
5.
Short-term Borrowings
On September 8, 2008, the Company entered into a Line of Credit Promissory Note with Lynda Pitts, Chief Executive Officer and Preston Pitts, Chief Operating Officer and Chief Financial Officer of the Company of which $225,000 has been advanced. Interest on the unpaid principal accrues monthly at a rate of 6% per annum. Principal and interest are due upon demand. As of March 31, 2009, $233,000 in principal and interest remained payable under the arrangement.
6.
Fair Value Measurements
Effective January 1, 2008, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, for our financial assets and liabilities. Effective January 1, 2009, the Company adopted the provisions of SFAS No. 157 for non-financial assets and liabilities measured on a recurring basis. The adoption of SFAS No. 157 had no material effect on our financial position or results of operations. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
The fair-value hierarchy established in SFAS No. 157 prioritizes the inputs used in valuation techniques into three levels as follows:
Level 1
Observable inputs quoted prices in active markets for identical assets and liabilities;
Level 2
Observable inputs other than the quoted prices in active markets for identical assets and liabilities such as quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, or other inputs that are observable or can be corroborated by observable market data;
Level 3
Unobservable inputs includes amounts derived from valuation models where one or more significant inputs are unobservable and require us to develop relevant assumptions.
The Company had trading securities and a deferred compensation liability which were valued at $214,000 and $4.8 million, respectively, using level 1 inputs at March 31, 2009. At December 31, 2008, the Company had trading securities and a deferred compensation liability which were valued at $641,000 and $5.3 million, respectively, using level 1 inputs.
8
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements contained in this document, including Managements Discussion and Analysis of Financial Condition and Results of Operations, that are not historical facts, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of Regan Holding Corp. and its businesses to be materially different from those expressed or implied by such forward-looking statements. These risks, uncertainties and factors include, among other things, the following: general market conditions and the changing interest rate environment; the interruption, deterioration, or termination of our relationships with the insurance carriers who provide our products or the agents who market and sell them; the ability to develop and market new products to keep up with the evolving industry in which we operate; increased governmental regulation, especially regulations affecting insurance, reinsurance, and holding companies; the ability to attract and retain talented and productive personnel; the ability to effectively fund our working capital requirements; the risk of substantial litigation or insurance claims; and other factors referred to in Managements Discussion and Analysis of Financial Condition and Results of Operations located in our Annual Report on Form 10-K for the year ended December 31, 2008.
Regan Holding Corp. assumes no obligation to update forward-looking statements to reflect actual results or changes in or additions to the factors affecting such forward-looking statements.
Recent Industry Developments
During the past few years, several proposals relating to our business have been made by federal and state agencies and legislative bodies and securities and insurance self-regulatory organizations. As discussed below, a few of these proposals have become effective, and others may be made or adopted.
On December 18, 2008, the Securities and Exchange Commission (SEC) adopted Rule 151A which will require certain fixed indexed annuity sales to be registered with the SEC by January 12, 2011. In addition, under the rule registered fixed indexed annuities will only be able to be sold by Financial Industry Regulatory Authority (FINRA) registered broker-dealers and representatives. As a result, fixed indexed annuity sales will be subject to regulation and oversight by both the SEC and FINRA. In response to the rule's adoption, a coalition of insurance companies and insurance marketing organizations have filed suit to block the implementation of the rule. In addition, on February 17, 2009 the National Association of Insurance Commissioners (NAIC) and NCOIL (the association of state insurance regulators and a group representing state legislators) filed a petition with the U.S. Court of Appeals for the D.C. Circuit that seeks to block implementation of the rule. Both suits dispute the SEC's authority to adopt Rule 151A. The industry groups argue the SEC rule violates the Securities Act of 1933 and prior Supreme Court precedents and that the SEC itself violated the Administrative Procedures Act. We cannot at this time predict whether implementation of Rule 151A will be enjoined. If Rule 151A becomes effective as adopted in 2011, we could be adversely impacted as we would have to expand our distribution capabilities into broker dealers.
FINRA has issued guidance to its members indicating that broker-dealers regulated by FINRA have certain responsibilities with respect to the offer and sale of equity-indexed annuities, including an obligation to determine the suitability of such products for their customers, regardless of whether equity-indexed annuities are deemed to be securities. In addition, some state insurance regulators are considering whether additional suitability and disclosure regulations should be implemented with respect to all sales of fixed annuities, particularly with respect to senior citizens.
Also, in recent years, the existing U.S. insurance and financial regulatory frameworks have come under scrutiny. Some state legislatures have considered laws that may alter or increase state regulation of insurance, reinsurance, and holding companies. Moreover, the NAIC and state insurance regulators regularly re-examine existing laws and regulations, often focusing on modifications to holding company regulations, interpretations of existing laws and the development of new laws pertaining to fixed annuities. Further, new accounting and actuarial proposals, including principles-based reserving, may be proposed and adopted. Changes in these laws and regulations or their interpretation could have a material adverse effect on our financial condition and results of operations.
9
Our core business consists of selling fixed annuity products, on behalf of insurance carriers, through a network of independent insurance producers (Producers). If the initiatives undertaken by the SEC, FINRA or state insurance regulators with respect to equity indexed or other fixed annuities were to result in new legislation or regulation, the demand for fixed annuities products, our business and those of our Producers could be adversely affected and could have a material adverse effect on the insurance industry in general or on our financial condition and results of operations.
In addition, the U.S. Congress is again considering legislation that would impose certain national uniform standards on insurance companies, establish an optional federal charter system for insurance companies and repeal the McCarran-Ferguson antitrust exemption for the business of insurance, any of which could have a significant impact on our business. If such laws or regulations are adopted, they could have a material adverse effect on our financial condition and results of operations.
Results of Operations
We had consolidated income from continuing operations, before income taxes, of $824,000 in the three months ended March 31, 2009, compared to $4.5 million in the three months ended March 31, 2008. Total revenue was $4.2 million in the three months ended March 31, 2009, compared to $10.1 million in the same period of 2008. The decrease was due primarily to a one-time $6.5 million gain on the sale of asset based trail commissions which occurred in 2008, lower trailing commissions of about $0.5 million, and was partially offset by a $1.2 million increase in marketing allowances and commission overrides.
The increase in marketing allowances and commission overrides during the three months ended March 31, 2009, was primarily attributable to increased sales of products issued by Investors Insurance Corp. The decrease in trailing commissions during the three months ended March 31, 2009, was due to a decline in inforce policies and the exchange of trail commission rights for limited partnership interest which was sold in March 2008.
During the three months ended March 31, 2009 and 2008, Legacy Marketing sold products primarily on behalf of four unaffiliated insurance carriers: Investors Insurance Corp., American National Insurance Company (American National), Washington National Insurance Company (Washington National), and OM Financial Life Insurance Company/Americom Life (OM Financial (Americom)). As indicated below, sales of these carriers products generated a significant portion of our total marketing allowance and commission override revenue:
|
|
| Three Months Ended | ||
|
|
| March 31, | ||
|
|
| 2009 |
| 2008 |
Investors Insurance Corp | 67% |
| 35% | ||
Washington National |
| 14% |
| 31% | |
American National |
| 11% |
| 19% | |
OM Financial (Americom) |
|
| 2% |
| 10% |
Other revenue of $1.0 million and $1.1 million for the three months ended March 31, 2009 and 2008, respectively, remained consistent and was comprised predominately of expense reimbursements under a contractual arrangement with Perot Systems, who in March 2008 assumed certain of our administrative service functions.
Selling, general and administrative expenses decreased $1.6 million (41%) during the three months ended March 31, 2009, compared to the same period in 2008, due primarily to a $0.5 million decrease in salaries and related benefits expense as a result of reduced headcount, a $0.5 million decrease in sales and promotional support, and a $0.4 million decrease in deferred compensation expense. The reduction in headcount was primarily due to the transfer of our policy administration function to Perot Systems, the decrease in sales and promotional support was primarily due to changes in estimates for certain sales and promotional related accrued liablilites, and the fluctuation in deferred compensation was due to a market value adjustment on previously recognized liabilities under our deferred compensation plans.
10
Depreciation expense for the period decreased $186,000 which is consistent with an increased average age of in-service assets, as well as with an overall reduction in fixed assets at March 31, 2009, compared to the same period ended 2008.
The rate of provision for income taxes for the three months ended March 31, 2009 and 2008 differs from the federal and state statutory rate primarily due to the expected utilization of federal net operating loss carryforwards in 2009 and the expected utilization of federal and state net operating loss carryforwards in 2008.
Liquidity and Capital Resources
Our net cash provided by or used in operating activities generally follows the trend in our revenue and operating results. Our cash used in operating activities in the three months ended March 31, 2009 was $123,000 which was consistent with our operating revenues as offset by the reduction of our current liabilities during the period. In the first quarter of 2008, our net cash provided by operations was $5.8 million and was due to the $6.5 million gain on sale of asset based trail commissions, offset in part by a decline in cash based operating results.
Net cash provided by investing activities in the first quarter of 2009 of $28,000 consisted of proceeds from the repayment of notes receivable, and was partially offset by purchases of fixed assets. Additions to fixed assets during the period included cash purchases of $21,000 related primarily to internal use software capitalizations, and non-cash additions of $84,000 related to equipment acquired under capital lease obligations. Net cash provided by investing activities in the same period 2008 of $286,000 was primarily due to temporarily restricted cash used to fund various arbitration settlements associated with our discontinued broker dealer operation.
Net cash used in financing activities in the first quarter of 2009 of $12,000 consisted of payments made on capital equipment lease obligations. Net cash used in financing activities in the first quarter of 2008 was $5.8 million and was primarily due to paying the entire outstanding balance of a $6 million note payable.
Although we used $123,000 in cash from operating activities in the first quarter of 2009, we did generate income from continuing operations for the period of $754,000 and do not anticipate a cash shortfall to occur. In the event that a cash shortfall does occur, we believe that adequate financing could be obtained to meet our cash flow needs. However, there can be no assurances that such financing would be available on favorable terms.
Recent Accounting Pronouncements
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. The statement amends SFAS No. 133 to enhance the disclosure requirement of derivative and hedging activities by providing adequate information on how such activities impact an entitys financial position, financial performance, and cash flow. This is intended to improve the transparency of financial reporting related to derivative and hedging activities. Our adoption of SFAS No. 161 was effective beginning January 1, 2009, and did not have a material effect on our results of operations and financial condition.
In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts, an interpretation of SFAS No. 60, Accounting and Reporting by Insurance Enterprises. The statement helps resolve diversity resulting in inconsistencies in the recognition and measurement of claim liabilities because of differing views about when a loss has been incurred. In addition, the Statement clarifies the financial reporting requirements under SFAS No. 60 of financial guarantee insurance contracts for better comparability. Our adoption of SFAS No. 163 was effective January 1, 2009, and did not have a material effect on our results of operations and financial condition.
11
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our market risk, interest rate risk, credit risk, or equity price risk since December 31, 2008. Please see our Annual Report on Form 10-K for the year ended December 31, 2008, for more information concerning Quantitative and Qualitative Disclosures About Market Risk.
Item 4(T). Controls and Procedures
Disclosure Controls and Procedures
As of March 31, 2009, we performed an evaluation of the effectiveness of our disclosure controls and procedures that are designed to provide reasonable assurance that the material financial and non-financial information required to be disclosed in our quarterly report and filed with SEC is recorded, processed, summarized and reported timely within the time period specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuers management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on our evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended) as of March 31, 2009, are effective at such reasonable assurance level. There can be no absolute assurance that our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives.
Changes in Internal Control Over Financial Reporting
During the most recent fiscal quarter, there have not been any significant changes in our internal controls over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II - OTHER INFORMATION
Item 1.
Legal Proceedings
From time to time, we are involved in various claims and legal proceedings arising in the ordinary course of business. Although it is difficult to predict the ultimate outcome of these cases, we believe the outcome will not have a material adverse effect on our financial condition, cash flows or results of operations.
Item 1A. Risk Factors
There have been no material changes to our risk factors from those reported in our Annual Report on Form 10-K for the year ended December 31, 2008.
Item 6.
Exhibits
31.1
Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act.
31.2
Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act.
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
REGAN HOLDING CORP. | |
Date: October 16, 2009 | Signature: /s/ R. Preston Pitts |
R. Preston Pitts | |
President, Chief Operating Officer and Chief Financial Officer | |
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INDEX TO EXHIBITS
Number
Description
31.1
Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act.
31.2
Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act.
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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