By Michael Hooper
One of the great challenges for investors is trying to find a legitimate startup company that is going to make it big.
Topeka has a history of multiple startups that have done well -- but many companies struggle and fail. Some of these businesses go to the public for capital.
Jack Brier, a former Kansas Secretary of State, has led several public offerings of stock in his company, US Alliance Corp. of Topeka.
Investors have sunk $22 million into his company, but the book value of US Alliance has fallen to $13.9 million, financial statements show. US Alliance is a holding company for US Alliance Life & Security Co., which sells insurance products like group life insurance and pre-need funeral expense policies. The company’s administrative offices are at 4123 S.W. Gage Center Drive, Topeka. Former Kansas Gov. William Graves is a director of US Alliance. There are about four employees in the Topeka office. Brier responds to questions about his business practices in this article.
A review of the financial statements of US Alliance Corp., founded by Brier in 2009, shows a company losing more than $1 million per year. Meanwhile Brier, chairman, president and CEO, has been earning a quarter million in income from the business annually.
Brier was Secretary of State in Kansas from 1978 to 1987.
Brier asked Kansas shareholders to pay $5 and $6 per share for stock in US Alliance, while he was able to acquire shares as an insider for 20 cents apiece. The 2017 audit of the company shows the stock worth $1.91 in book value on Dec. 31, 2017. Insurance companies typically trade around book value, which is assets minus liabilities.
US Alliance has never turned a profit since its formation in 2009. The company lost $1.05 million in 2017, lost $1.2 million in 2016, and lost $1.7 million loss in 2015.
There are about 3380 shareholders of US Alliance Corporation stock, two thirds of them are from Kansas.
In 2016, Jack Brier earned $200,000, a $57,000 bonus plus another $28,000 compensation for a total of $285,974.
The company wants to raise more money through the sale of stock.
Investors who bought stock in this company in the last six or seven years have seen their shares lose more than 60% of their book value. Meanwhile the US Stock Market has tripled in value since 2009.
Brier acquired 414,800 shares at 20 cents per share. Early organizers and insiders acquired 1.2 million shares at 20 cents apiece when the company was founded in 2009. The first policy was sold in 2013.
During the first four years, the company raised money, often attracting small mom and pop investors around Kansas.
In 2017, the company acquired policies from American Life & Security plus bought another company Northern Plains Capital Corporation and its subsidiary, Dakota Capital Life Insurance. US Alliance paid $1.85 million for $8 million in assets from American Life & Security policies in Wyoming and South Dakota, Brier said. The company used $3 million in stock to buy Northern Plains Capital.
When asked why the company’s shares have lost 60% of their book value, Brier said, “that is the price of increasing the assets of the company from $19 million to $38 million.
“We doubled the assets of the company, but our operating expenses increased just 17%,” Brier said in a phone interview.
I asked him how he justifies paying himself $285,000? And he said he sees the the glass half full, deflecting my question.
“We told shareholders this is a not a get rich quick opportunity,” he said. He complained about low interest rates earning little on capital invested in bonds. Management does not want to take on too much risk. The company is building its revenue and income, he said.
It appears the winner in this US Alliance business is Brier, not the shareholders.
“It’s been a great set up for Jack Brier, but unfortunately he’s burned a lot of investors along the way,” said David Tangeman, a Houston accountant who reviewed the financial statements of US Alliance.
The company’s web site has charts showing how the company has increased its customers and premium income, it sounds like everything is great, the company plans to sell more shares, but its web site doesn’t talk about the loss in book value.
I respect Brier for taking my call about his business, but I think his priorities are skewed in his favor. He talked about his admiration of Warren Buffett, CEO and chairman of Berkshire Hathaway. Brier’s company has bought reinsurance from Berkshire Hathaway’s General Re and also has hired a Berkshire Hathaway subsidiary to handle management of US Alliance’s bond portfolio.
The major difference between Buffett and Brier -- and there are many differences -- is that Buffett took no more than $100K salary from his company while focusing on building up shareholder value. In the early stages of a company, it is common for CEOs to be frugal and pay themselves very little -- a living wage -- rather than a quarter million. The book value of Berkshire Hathaway has increased in value about 20% annually, while Brier’s company has declined in book value by 60% and Brier’s company has never turned a profit.
Investors beware.
The author is a stockholder of Berkshire Hathaway.
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