United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2005.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________.
Commission file number : 0-25679
FIRST AMERICAN CAPITAL CORPORATION
(Exact Name of small business issuer in its charter)
Kansas 48-1187574
(State of incorporation) (I.R.S. Employer Identification Number)
1303 S.W. First American Place Topeka, Kansas 66604
(Address of principal executive offices)
Issuer's telephone number (785) 267-7077
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Stock, $.10 Par Value - 4,237,578 shares as of November 1, 2005
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
1
FIRST AMERICAN CAPITAL CORPORATION
INDEX TO FORM 10-QSB
Page Numbers
------------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2005
and December 31, 2004......................................... 3
Condensed Consolidated Statements of Operations for the
three months ended September 30, 2005 and 2004 and for the
nine months ended September 30, 2005 and 2004................. 5
Condensed Consolidated Statements of Comprehensive Income
for the three months ended September 30, 2005 and 2004
and for the nine months ended September 30, 2005 and 2004..... 6
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2005 and 2004................. 7
Notes to Condensed Consolidated Financial Statements............. 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 13
Item 3. Controls and Procedures.................................. 21
Part II. OTHER INFORMATION
Item 1. Legal Proceedings........................................ 22
Item 6. Exhibits and Reports on Form 8-K......................... 23
SIGNATURES....................................................... 25
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2005 2004
------------- ------------
ASSETS
Investments:
Securities available-for-sale, at fair value:
Fixed maturities (amortized cost, $13,141,417
in 2005 and $13,206,486 in 2004) $13,155,206 $13,479,388
Equity securities (cost of $458,150 in 2005
and $235,400 in 2004) 458,027 236,342
Investments in real estate 274,564 274,564
Policy loans 102,845 86,946
Mortgage loans on real estate 1,222,849 349,542
Other investments 1,133,434 206,306
----------- -----------
Total investments 16,346,925 14,633,088
Cash and cash equivalents 592,985 527,028
Accrued investment income 196,795 214,140
Accounts receivable 464,864 258,194
Reinsurance receivables 658,968 --
Deferred policy acquisition costs (net of accumulated
amortization of $3,556,404 in 2005 and $3,081,632 in
2004) 4,996,230 4,516,994
Property and equipment (net of accumulated depreciation
of $780,671 in 2005 and $668,821 in 2004) 2,794,502 2,775,187
Other assets 23,689 30,365
----------- -----------
Total assets $26,074,958 $22,954,996
=========== ===========
See notes to condensed consolidated financial statements
3
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
September 30, December 31,
2005 2004
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy and contract liabilities:
Future annuity benefits $ 9,387,060 $ 6,806,430
Future policy benefits 5,039,486 4,149,304
Liability for policy claims 141,906 112,906
Policyholder premium deposits 155,986 186,971
Deposits on pending policy applications 8,494 9,668
Reinsurance premiums payable 243,880 23,120
Amounts held under reinsurance 300,883 --
----------- -----------
Total policy and contract liabilities 15,277,695 11,288,399
Commissions, salaries, wages and benefits payable 122,242 103,944
Other liabilities 369,118 200,870
Notes payable 2,296,966 1,791,607
Deferred federal income taxes payable 568,414 603,489
----------- -----------
Total liabilities 18,634,435 13,988,309
Shareholders' equity:
Common stock, $.10 par value, 8,000,000 shares
authorized; 5,449,578 shares issued and
4,237,578 shares outstanding in 2005; and
5,449,578 issued and 4,688,078 shares
outstanding in 2004 544,958 544,958
Additional paid in capital 12,416,181 12,380,716
Accumulated deficit (3,378,304) (2,795,775)
Accumulated other comprehensive income 11,709 220,454
Less: Treasury stock held at cost (1,212,000
shares in 2005 and 761,500 in 2004) (2,154,021) (1,383,666)
----------- -----------
Total shareholders' equity 7,440,523 8,966,687
----------- -----------
Total liabilities and shareholders' equity $26,074,958 $22,954,996
=========== ===========
See notes to condensed consolidated financial statements.
4
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Three months ended Nine months ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
------------- ------------- ------------- -------------
Revenues:
Gross premium income $1,022,887 $ 827,664 $3,124,099 $2,709,160
Reinsurance premiums assumed 3,780 3,198 9,660 8,578
Reinsurance premiums ceded (216,142) (22,449) (284,339) (95,530)
---------- ---------- ---------- ----------
Net premium income 810,525 808,413 2,849,420 2,622,208
Net investment income 220,784 136,380 621,652 348,358
Net realized investment gain (loss) (3,378) -- (1,836) 464,361
Rental income 50,394 45,779 141,952 136,774
Other income 53 -- 103 38
---------- ---------- ---------- ----------
Total revenue 1,078,378 990,572 3,611,291 3,571,739
Benefits and expenses:
Increase in policy reserves 211,750 159,912 890,182 698,352
Policyholder surrender values 59,909 59,035 170,056 111,338
Interest credited on annuities and
premium deposits 104,164 89,054 288,758 249,093
Death claims 140,479 82,341 346,479 218,850
Commissions 228,419 248,221 922,801 783,210
Policy acquisition costs deferred (174,678) (303,230) (954,007) (942,616)
Amortization of deferred policy
acquisition costs 133,828 208,909 474,772 594,372
Salaries, wages, and employee benefits 296,449 266,617 929,819 821,240
Miscellaneous taxes 31,374 33,329 109,343 140,515
Other operating costs and expenses 205,389 450,030 999,256 1,051,861
---------- ---------- ---------- ----------
Total benefits and expenses 1,237,083 1,294,218 4,177,459 3,726,215
---------- ---------- ---------- ----------
Income (loss) before income tax expense (158,705) (303,646) (566,168) (154,476)
---------- ---------- ---------- ----------
Income tax expense (benefit) 1,410 (28,716) 16,361 (25,507)
---------- ---------- ---------- ----------
Net income (loss) $ (160,115) $ (274,930) $ (582,529) $ (128,969)
========== ========== ========== ==========
Net income (loss) per common
share - basic and diluted $ (0.04) $ (0.06) $ (0.13) $ (0.03)
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
5
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) (Unaudited)
Three months ended Nine months ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
------------- ------------- ------------- -------------
Net income (loss) $(160,115) $(274,930) $(582,529) $(128,969)
Unrealized gain (loss) on
available-for-sale securities:
Unrealized holding gain (loss)
during the period (337,597) 112,712 (262,015) 57,042
Less: Reclassification for gains (loss)
included in net income (3,378) -- (1,836) 464,361
Tax expense 66,492 (22,640) 51,433 108,599
--------- --------- --------- ---------
Other comprehensive income (loss) (267,727) 90,072 (208,746) (298,720)
--------- --------- --------- ---------
Comprehensive income (loss) $(427,842) $(184,858) $(791,275) $(427,689)
========= ========= ========= =========
Comprehensive income (loss) per
common share-basic and diluted $ (0.10) $ (0.04) $ (0.18) $ (0.09)
========= ========= ========= =========
See notes to condensed consolidated financial statements.
6
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Unaudited)
September 30, September 30,
2005 2004
------------- -------------
OPERATING ACTIVITIES:
Net loss $(582,529) $(128,969)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Interest credited on annuities and premium deposits 288,758 249,093
Net realized investment (gain) loss 1,836 (464,361)
Provision for depreciation 114,555 88,750
Equity loss in investment in affiliate -- 28,516
Settlement loss 35,465 --
Amortization of premium and accretion of discount on
fixed maturity and short-term investments 34,204 105,870
Provision for deferred federal income taxes 16,361 (25,507)
(Increase) decrease in accrued investment income 17,345 (16,280)
(Increase) decrease in accounts receivable (206,670) 73,286
Increase in reinsurance receivables (658,968) --
Acquisition costs capitalized (954,007) (942,616)
Amortization of deferred acquisition costs 474,772 594,372
Increase in policy loans (15,899) (11,870)
(Increase) decrease in other assets 6,676 (23,403)
Increase in future policy benefits 890,182 698,352
Increase (decrease) in liability for policy claims 29,000 (17,477)
Decrease in deposits on pending policy applications (1,174) (27,085)
Increase (decrease) in reinsurance premiums payable 220,760 (7,017)
Increase in amounts held under reinsurance 300,883 --
Increase in commissions, salaries, wages and
benefits payable 18,298 40,740
Increase in other liabilities 168,248 168,708
--------- ---------
Net cash provided by operating activities $ 198,096 $ 383,102
See notes to condensed consolidated financial statements.
7
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited) (Unaudited)
September 30, September 30,
2005 2004
------------- -------------
INVESTING ACTIVITIES:
Purchase of available-for-sale fixed maturities $(1,565,239) $(9,059,880)
Sale of available-for-sale fixed maturities 400,080 6,525,444
Maturity of available-for-sale fixed maturities 1,156,623 1,350,000
Purchase of available-for-sale equity securities (247,750) (2,350)
Sale of available-for-sale equity securities 25,000 --
Additions to property and equipment (133,870) (69,550)
Purchase of other investments (997,900) (128,860)
Maturity of other investments 108,333 --
Purchase of investments in affiliate -- (11,500)
Dispositions of investments in affiliate -- 48,184
Purchase of mortgage loans (889,600) --
Payments received on mortgage loans 16,293 --
Payments on notes receivable -- 13,741
Purchases of short-term investments -- (3,925,512)
Sale or maturity of short-term investments -- 4,176,782
----------- -----------
Net cash (used in) provided by investing activities (2,128,030) (1,083,501)
FINANCING ACTIVITIES:
Proceeds from note payable 570,355 --
Payments on notes payable (64,996) (38,107)
Deposits on annuity contracts 2,793,590 1,404,897
Surrenders on annuity contracts (496,396) (213,455)
Policyholder premium deposits 23,938 22,472
Withdrawals on policyholder premium deposits (60,245) (53,664)
Purchase of treasury stock (770,355) --
----------- -----------
Net cash provided by financing activities 1,995,891 1,122,143
----------- -----------
(Decrease) Increase in cash and cash equivalents 65,957 421,744
Cash and cash equivalents, beginning of period 527,028 397,789
----------- -----------
Cash and cash equivalents, end of period $ 592,985 $ 819,533
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH ACTIVITIES:
Interest paid $ 105,084 $ 83,697
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
SCHEDULE OF NON-CASH INVESTING TRANSACTIONS:
Receivable on sale of securities $ -- $ --
=========== ===========
See notes to condensed consolidated financial statements.
8
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of First American
Capital Corporation and its Subsidiaries (the "Company") for the three month and
nine month periods ended September 30, 2005 and 2004 are unaudited. However, in
the opinion of the Company, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been reflected
therein.
Effective June 29, 2005, the Company formed and capitalized First Life
Brokerage, Inc. ("FLBI"). FLBI was capitalized with $25,000 and is a direct
subsidiary of First American Capital Corporation. FLBI will operate as an
insurance broker offering complementary products underwritten by other
companies.
Certain financial information which is normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America, but which is not required for interim reporting
purposes, has been omitted. The accompanying condensed consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-KSB for the fiscal year ended December
31, 2004. Certain reclassifications have been made in the prior period financial
statements to conform to the current period presentation. The results of
operations for the period are not necessarily indicative of the results to be
expected for the full year.
2. REINSURANCE
Effective September 29, 2005, the Company and Wilton Reassurance Company
("Wilton Re"), of Wilton, CT, executed a binding letter of intent whereby both
parties agreed that the Company would cede the simplified issue version of its
Golden Eagle Whole Life (Final Expense) product to Wilton Re on a 50/50 quota
share original term coinsurance basis. The letter of intent was executed on a
retroactive basis to cover all applicable business issued by the Company
subsequent to January 1, 2005. Wilton Re has agreed to provide various
commission and expense allowances to the Company in exchange for the Company
ceding 50% of the applicable premiums to Wilton Re as they are collected. The
impact of this reinsurance agreement on the condensed consolidated financial
statements for the nine months ended September 30, 2005 is summarized below.
Balance Balance
Excluding Including
Reinsurance Impact Reinsurance
----------- --------- -----------
Balance Sheet
Assets:
Accounts receivable $ 466,192 $ (1,328) $ 464,864
Reinsurance receivables -- 658,968 658,968
Deferred policy acquisition costs 5,254,203 (257,973) 4,996,230
---------
$ 399,667
Liabilities & Shareholders' Equity:
Future policy benefits $5,146,874 $(107,388) $5,039,486
Liability for policy claims 171,582 (29,676) 141,906
Reinsurance premiums payable 18,798 225,082 243,880
Amounts held under reinsurance -- 300,883 300,883
Deferred federal income taxes payable 560,291 8,123 568,414
Shareholders' equity 7,437,880 2,643 7,440,523
---------
$ 399,667
9
2. REINSURANCE (CONTINUED)
Statement of Operations
Revenues:
Reinsurance premiums ceded $ (93,158) $(191,181) $(284,339)
Benefits & Expenses:
Increase in policy reserves $ 997,570 $(107,388) $ 890,182
Death claims 385,945 (39,466) 346,479
Commissions 1,118,854 (196,053) 922,801
Policy acquisition costs deferred (1,256,242) 302,235 (954,007)
Amortization of deferred policy
acquisition costs 519,034 (44,262) 474,772
Miscellaneous taxes 114,088 (4,745) 109,343
Other operating costs and expenses 1,111,524 (112,268) 999,256
---------
$(201,947)
Income tax expense $ 8,238 $ 8,123 $ 16,361
Net income (loss) $ (585,172) $ 2,643 $(582,529)
3. LEASES
Effective August 29, 2005, the Company executed a lease agreement with a tenant
for the remaining 2,400 square feet of vacant space in its 20,000 square foot
office building. The base lease period commenced on September 1, 2005 and will
end on August 31, 2010. The lease will automatically renew if not terminated on
or after August 15, 2010 for another five years. The lease agreement calls for
minimum monthly base lease payments of $4,332 for the period September 1, 2005
through August 31, 2010. The lease payments will decrease to $3,100 per month
for the period September 1, 2010 through August 31, 2015. In conjunction with
the execution of the lease agreement, the Company incurred $103,372 in tenant
improvement costs to prepare the space for lease. These costs are being
depreciated on a straight line basis over the base lease term of five years.
4. TREASURY STOCK TRANSACTION
On March 2, 2005 the Company acquired 450,500 shares of its common stock from a
single, corporate shareholder, Brooke Corporation ("Brooke"). The Company
negotiated a purchase price of $770,355 ($1.71 per share) to include $200,000
cash at closing, with Brooke Credit Corporation, the finance subsidiary of
Brooke, financing the remainder at a fixed interest rate of 8% over a ten year
period. The agreement also grants Brooke three separate warrants to purchase
common stock for 50,000 shares each at prices of $1.71, $3.35 and $5.00. The
warrants are exercisable in 2012 or immediately prior to any earlier change of
control involving the Company and expire no later than 2015. The agreement also
contained covenants whereby Brooke agreed, among other things, not to purchase
additional shares of the Company's common stock or participate in any proxy
contest or other effort to take control of the Company for a period of five
years. The Company incurred a loss on the transaction in the amount of $35,465.
The loss is included in other operating costs and expenses for the nine months
ended September 30, 2005. The fair value of the warrants has been included in
additional paid in capital.
5. NOTES PAYABLE
The Company maintained a $1,750,789 note to VisionBank as of September 30, 2005.
The note is secured by the home office building. The note will mature on April
22, 2013. The note is payable in 120 monthly payments of $13,534 each with a
final payment of the unpaid principal balance and interest on April 22, 2013.
Interest will be accrued at 6% until April 22, 2008 at which time the rate may
change. The interest rate change will be the Wall Street Journal Prime Rate of
Interest, subject to a floor of 6% and a ceiling of 9.5%.
10
On March 2, 2005 the Company borrowed $570,355 from Brooke Credit Corporation at
a fixed interest rate of 8% over a ten year period (See Note 4). The note is
payable in 120 monthly payments of $6,897. The balance of the note at September
30, 2005 was $546,177.
6. NET EARNINGS PER COMMON SHARE
Net income (loss) per common share for basic and diluted earnings per share is
based upon the weighted average number of common shares outstanding during each
period. On March 2, 2005 the Company acquired 450,500 shares of its common stock
from Brooke. The weighted average number of common shares outstanding was
4,337,239 and 4,687,078 for the nine months ended September 30, 2005 and
September 30, 2004, respectively. The weighted average number of common shares
outstanding was 4,237,578 and 4,687,078 for the three months ended September 30,
2005 and September 30, 2004, respectively.
7. FEDERAL INCOME TAXES
Current taxes are provided based on estimates of the projected effective annual
tax rate. Deferred taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has elected
to file a consolidated federal income tax return with its subsidiary, First Life
America Corporation ("FLAC") commencing with the year ended December 31, 2003.
FLAC is taxed as a life insurance company under the provisions of the Internal
Revenue Code and had to file a separate tax return for its initial five years of
existence.
8. COMMITMENTS AND CONTINGENCIES
On November 12, 2003, the Company filed a petition in the District Court of
Shawnee County, Kansas asserting claims against Rickie D. Meyer ("Meyer"), the
Company's former President, arising, in part, out of Meyer's employment with the
Company. Among other things, the Company is seeking to recover expense
reimbursements previously paid to Meyer and Company funds allegedly
misappropriated by Meyer. The petition alleges that Meyer misappropriated funds
from the Company by fraudulently altering a check made payable to the Company.
The Company is also seeking to have Meyer reimburse it for the amount it paid
another insurance company in settlement of a claim. On August 8, 2003, the
Company settled a claim that it had breached various marketing agreements with
AF&L, a long-term care insurance company, and certain of its affiliates, through
the payment to AF&L of $150,000 plus $15,000 in attorney fees. The petition
asserts that Meyer entered into the marketing agreements despite knowing that
the Company could not perform on the financial requirements of the agreements
and without the knowledge, approval or authorization of the Company's Board of
Directors.
On December 12, 2003, Meyer filed an Answer and Counterclaim against the Company
asserting claims for defamation and breach of employment agreement. Meyer seeks
damages in excess of $75,000 plus interest and costs on his defamation claims.
Meyer seeks damages in the amount of $250,000 for an alleged breach of a
provision in his employment contract regarding severance pay; he seeks
additional damages in excess of $75,000 for an alleged breach of a provision in
the employment contract relating to payment of residual commissions.
On August 1, 2005, the District Court of Shawnee County, Kansas entered an
order, by agreement, submitting the claims to binding arbitration. The
arbitration commenced on November 7, 2005 and concluded on November 10, 2005.
The results of the arbitration have not been announced. No accrual of any loss
or gain that may result from the resolution of these matters has been reflected
in the financial statements. The amount of the ultimate loss or gain could
differ materially from the amounts noted above.
11
9. SEGMENT INFORMATION
The operations of the Company and its subsidiaries have been classified into two
operating segments as follows: life and annuity insurance operations and
corporate operations. The brokerage operations of FLBI are included in corporate
operations as a result of their relative insignificance to date. Segment
information for the three and nine months ended September 30, 2005 and 2004 and
as of September 30, 2005 and December 31, 2004 is as follows:
Three months ended Nine months ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
------------- ------------- ------------- -------------
Revenues:
Life and annuity insurance operations $1,023,392 $ 942,989 $3,445,840 $3,226,725
Corporate operations 54,986 47,583 165,451 345,014
---------- --------- ---------- ----------
Total $1,078,378 $ 990,572 $3,611,291 $3,571,739
========== ========= ========== ==========
Income (loss) before income taxes:
Life and annuity insurance operations $ 16,190 $ 36,973 $ 99,886 $ 432,091
Corporate operations (174,895) (340,619) (666,054) (586,567)
---------- --------- ---------- ----------
Total $ (158,705) $(303,646) $ (566,168) $ (154,476)
========== ========= ========== ==========
Depreciation and amortization expense:
Life and annuity insurance operations $ 133,828 $ 208,909 $ 474,772 $ 594,372
Corporate operations 31,685 33,030 114,555 88,750
---------- --------- ---------- ----------
Total $ 165,513 $ 241,939 $ 589,327 $ 683,122
========== ========= ========== ==========
September 30, December 31,
2005 2004
------------- ------------
Assets:
Life and annuity insurance operations $22,366,182 $18,305,111
Corporate operations 3,708,776 4,649,885
----------- -----------
Total $26,074,958 $22,954,996
=========== ===========
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company makes forward-looking statements from time to time and desires to
take advantage of the "safe harbor" that is afforded such statements under the
Private Securities Litigation Reform Act of 1995 when they are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those in the forward-looking
statements.
The statements contained in this report, which are not historical facts, are
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially from those set forth in the forward-looking
statements. Any projections of financial performances or statements concerning
expectations as to future developments should not be construed in any manner as
a guarantee that such results or developments will, in fact, occur. There can be
no assurance that any forward-looking statement will be realized or that actual
results will not be significantly different from that set forth in such
forward-looking statement. In addition to the risks and uncertainties of
ordinary business operations, the forward-looking statements of the Company
referred to above are also subject to the following risks and uncertainties,
among others: (i) the strength of the United States economy in general and the
strength of the local economies in which the Company does business; (ii)
inflation, interest rates, market and monetary fluctuations and volatility;
(iii) the timely development of and acceptance of new products and services and
perceived overall value of these products and services by existing and potential
customers; (iv) the persistency of existing and future insurance policies sold
by the Company; (v) the effect of changes in laws and regulations with which the
Company must comply; and (vi) the cost and effects of litigation and of
unexpected or adverse outcomes in litigation.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
Critical Accounting Policies and Estimates
The accounting policies below have been identified as critical to the
understanding of the results of operations and financial position. The
application of these critical accounting policies in preparing the financial
statements requires management to use significant judgments and estimates
concerning future results or other developments, including the likelihood,
timing or amount of one or more future transactions. Actual results may differ
from these estimates under different assumptions or conditions. On an ongoing
basis, estimates, assumptions and judgments are evaluated based on historical
experience and various other information believed to be reasonable under the
circumstances.
Investments
The Company's principal investments are in fixed maturity securities.
Investments are exposed to three primary sources of investment risk: credit,
interest rate and liquidity. The fixed maturity securities, which are all
classified as available for sale, are carried at their fair value in the
Company's balance sheet. The investment portfolio is monitored regularly to
ensure that investments which may be other than temporarily impaired are
identified in a timely fashion and properly valued, and that impairments are
charged against earnings as realized investment losses. The valuation of the
investment portfolio involves a variety of assumptions and estimates, especially
for investments that are not actively traded. Fair values are obtained from
broker statements.
Deferred Policy Acquisition Costs
Deferred policy acquisition costs, principally agent commissions and other
selling, selection and issue costs, which vary with and are directly related to
the production of new business, are capitalized as incurred. These deferred
costs are then amortized in proportion to future premium revenues or the
expected future profits of the business, depending upon the type of product.
Profit expectations are based upon assumptions of future interest spreads,
mortality margins, expense margins and policy and premium persistency
experience. These assumptions involve judgment and are compared to actual
experience on an ongoing basis.
Future Policy Benefits
The Company establishes liabilities for amounts payable under insurance
policies. Generally, benefits are payable over an extended period of time and
the reserves established for future policy benefits are dependent on the
assumptions used in the pricing of the products. Principal assumptions used in
pricing policies and in the establishment of reserves for future policy benefits
are mortality, morbidity, expenses, persistency, investment returns and
inflation. Differences
13
between actual experience and assumptions used in the pricing of these policies
and in the establishment of liabilities may result in variability of net income
in amounts which may be material.
Future Annuity Benefits
Future annuity benefits relate to deferred annuity contracts. The account
balances for deferred annuity contracts are equal to the cumulative deposits
less any applicable contract charges plus interest credited. The profitability
of these products is also dependent on principal assumptions similar to
traditional insurance products, and differences between actual experience and
pricing assumptions may result in variability of net income in amounts which may
be material.
Premiums
Premiums for traditional life insurance products are reported as revenue when
due. Traditional insurance products include whole life and term life. Deposits
relate to deferred annuity products. The cash flows from deposits are credited
to policyholder account balances. Deposits are not recorded as revenue.
Income Taxes
Deferred income taxes are recorded on the differences between the tax bases of
assets and liabilities and the amounts at which they are reported in the
consolidated financial statements. Recorded amounts are adjusted to reflect
changes in income tax rates and other tax law provisions as they become enacted.
Reinsurance
Reinsurance is one of the tools that the Company uses to accomplish its business
objectives. A variety of reinsurance vehicles are currently in use. Reinsurance
supports a multitude of corporate objectives including managing statutory
capital, reducing volatility and reducing surplus strain. At the customer level
it increases the Company's capacity, provides access to additional underwriting
expertise, and generally makes it possible for the Company to offer products at
competitive levels that the Company could not otherwise bring to market without
reinsurance support.
Financial Condition
Significant changes in the condensed consolidated balance sheets from December
31, 2004 to September 30, 2005 are highlighted below.
Total assets increased from $22,954,996 at December 31, 2004 to $26,074,958 at
September 30, 2005. The increase in total assets is primarily attributable to
the investment of premiums received during the year. Given the long-term nature
of the policy and contract liabilities associated with these premiums,
management is able to invest these premiums for a period of time until a payout
of policy benefits is required.
The Company's available-for-sale fixed maturity securities had a fair value of
$13,155,206 and $13,479,388 at September 30, 2005 and December 31, 2004,
respectively. This investment portfolio is reported at market value with
unrealized gains and losses, net of applicable deferred taxes, reflected as a
separate component of accumulated other comprehensive income.
Credit risk is limited by emphasizing investment grade securities and by
diversifying the investment portfolio among various investment instruments.
Certain cash balances exceed the maximum insurance protection of $100,000
provided by the Federal Deposit Insurance Corporation. However, cash balances
exceeding this maximum are protected through additional insurance. As a result,
management believes that significant concentrations of credit risk do not exist.
Available for sale equity securities increased from $236,342 at December 31,
2004 to $458,027 at September 30, 2005. The increase is attributable to the
purchases of equity securities of $247,750 during the nine months ended
September 30, 2005. This investment portfolio is reported at market value with
unrealized gains and losses, net of applicable deferred taxes, reflected as a
separate component of accumulated other comprehensive income.
Mortgage loans on real estate increased from $349,542 at December 31, 2004 to
$1,222,849 at September 30, 2005. The increase is attributable to the purchase
of three additional mortgage loans on commercial properties. The Company
currently owns four mortgage loans. The Company may purchase more of these types
of investments in the future in
14
limited quantities in an effort to enhance the Company's investment portfolio
yield.
Other investments increased from $206,306 at December 31, 2004 to $1,133,434 at
September 30, 2005. The increase is attributable to the purchase of additional
investments in lottery prize cash flows during the nine months ended September
30, 2005. These other investments involve purchasing assignments of the future
payment rights from the lottery winners at a discounted price sufficient to meet
the Company's yield requirements. Payments on these other investments will be
made by state run lotteries and as such are backed by the general credit of the
respective state. The Company may purchase more of these types of investments in
the future in limited quantities in an effort to enhance the Company's
investment portfolio yield.
Cash and cash equivalents increased to $592,985 at September 30, 2005 from
$527,028 at December 31, 2004. Refer to the statement of cash flows for sources
and uses of cash.
Accounts receivable increased 80% from $258,194 at December 31, 2004 to $464,864
at September 30, 2005. The increase is primarily due to an increase of $174,640
in amounts due from agents. An allowance for uncollectible items is not deemed
necessary with respect to these receivables.
Reinsurance receivables increased from $0 at December 31, 2004 to $658,968 at
September 30, 2005. The increase during the year represents the balance due from
Wilton Re in conjunction with the reinsurance of the Company's Golden Eagle
Whole Life (Final Expense) product (See Note 2 to the Condensed Consolidated
Financial Statements). Of the $658,968 balance due, $532,166 is attributable to
commission allowances paid on an annualized basis, $117,012 is attributable to
expense allowances, and $9,790 represents a recovery for paid claims.
Deferred policy acquisition costs, net of amortization, increased 11% from
$4,516,994 at December 31, 2004 to $4,996,230 at September 30, 2005 resulting
from the capitalization of acquisition expenses related to the sales of life
insurance. These acquisition expenses include commissions on first year
business, medical exam and inspection report fees, and salaries of employees
directly involved in the marketing, underwriting and policy issuance functions.
Management of the Company reviews the recoverability of deferred acquisition
costs on a quarterly basis based on current trends as to persistency, mortality
and interest. These trends are compared to the assumptions used in the
establishment of the original asset in order to assess the need for impairment.
Based on the results of the aforementioned procedures performed by management,
no impairments have been recorded against the balance of deferred acquisition
costs.
Liabilities increased to $18,634,435 at September 30, 2005 from $13,988,309 at
December 31, 2004. A significant portion of this increase is attributable to
future policy and annuity benefits related to sales of the Company's various
life insurance products. Reserves for future policy benefits established due to
the sale of life insurance increased $890,182 or 21% from December 31, 2004 to
September 30, 2005. These reserves are actuarially determined based on such
factors as insured age, life expectancy, mortality and interest assumptions.
Reserves for future annuity benefits increased $2,580,630 or 38% from December
31, 2004 to September 30, 2005. In 2005, annuity contract liabilities increased
due to the introduction of three new annuity products to the marketing force and
continued considerations received on the Company's FA2000 product. According to
the design of the Company's FA2000 product, first year premium payments are
allocated 100% to life insurance and renewal payments are split 50% to life and
50% to annuity.
Reinsurance premiums payable increased from $23,120 at December 31, 2004 to
$243,880 at September 30, 2005. The increase during the year is representative
of the balance due to Wilton Re in conjunction with the reinsurance of the
Company's Golden Eagle Whole Life (Final Expense) product. Of the $225,082
balance due to Wilton Re at September 30, 2005, $189,853 represents ceded
premiums and $35,229 represents a charge back of commission allowances due from
Wilton Re.
Amounts held under reinsurance increased from $0 at December 31, 2004 to
$300,883 at September 30, 2005. The increase during the year represents the
unearned portion of commission allowances due to the Company by Wilton Re in
conjunction with the reinsurance of the Company's Golden Eagle Whole Life (Final
Expense) product. Commission allowances are paid to the Company on an annualized
basis and initially recorded by the Company as a liability. The liability is
subsequently released and applied against policy acquisition costs over the
first policy year as premiums are paid on the applicable business.
15
Other liabilities increased $168,248 from $200,870 at December 31, 2004 to
$369,118 at September 30, 2005. The increase is attributable to timing factors
associated with the payment of significant invoices for tenant improvement costs
to the Company's home office building and professional services.
Notes payable increased $505,359 from $1,791,607 at December 31, 2004 to
$2,296,966 at September 30, 2005. The increase is attributable to the Company
acquiring 450,500 shares of its common stock from Brooke. The Company negotiated
a purchase price of $770,355 ($1.71 per share) to include $200,000 cash at
closing, with Brooke Credit Corporation, the finance subsidiary of Brooke,
financing the remaining $570,355 at a fixed interest rate of 8% over a ten year
period.
Deferred federal income taxes payable decreased to $568,414 at September 30,
2005 from $603,489 at December 31, 2004. Deferred federal income taxes payable
are established based on timing differences between income recognized for
financial statement purposes and taxable income for the Internal Revenue
Service. These deferred taxes are based on the operations of the Company and
FLAC and on unrealized gains of available-for-sale securities.
16
Results of Operations
Significant components of revenues include life insurance premiums (net of
reinsurance), net investment income, and net realized investment gain. The
following table provides information concerning net premium income for the three
months and nine months ended September 30, 2005 and 2004:
Three months ended Nine months ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
------------- ------------- ------------- -------------
Whole life insurance:
First year $ 310,783 $208,396 $ 810,797 $ 691,501
Renewal 707,413 606,843 2,285,428 1,988,226
Term insurance:
First year 935 100 1,912 1,040
Renewal 1,856 2,025 14,842 15,773
Single premium 1,900 10,300 11,120 12,620
---------- -------- ---------- ----------
Gross premium income 1,022,887 827,664 3,124,099 2,709,160
Reinsurance premiums assumed 3,780 3,198 9,660 8,578
Reinsurance premiums ceded (216,142) (22,449) (284,339) (95,530)
---------- -------- ---------- ----------
Net premium income $ 810,525 $808,413 $2,849,420 $2,622,208
========== ======== ========== ==========
Net premium income increased $227,212 or 9% from the nine months ended September
30, 2004 to the same period during 2005. Total first year whole life premium
increased $119,296 or 17% from 2004 to 2005. The increase is attributable to an
increase in the production of the Company's Golden Eagle Whole Life (Final
Expense) product.
Management spent a significant amount of time during 2004 developing new
products in an effort to enhance production going forward. Management has
released several new annuity, term and whole life products during 2005. The
Company's goal in introducing these new products is to diversify the Company's
product mix and to manage its first year production to both the needs and
capacity of the Company.
Total renewal year whole life premiums increased $297,202 or 15% from the nine
months ended September 30, 2004 to the same period during 2005. Renewal premiums
reflect the premium collected in the current year for those policies that have
surpassed their first anniversary. Renewal premiums will continue to increase
unless premiums lost from surrenders, lapses, settlement options or application
of the non-forfeiture options, exceed prior year's first year premium.
Reinsurance premiums ceded increased $188,809 from the nine months ended
September 30, 2004 to the same period in 2005. The increase is attributable to
$189,853 in premiums due to Wilton Re as of September 30, 2005 in conjunction
with the reinsurance of the Company's Golden Eagle Whole Life (Final Expense)
product.
Net premium income increased $2,112 or 0.3% from the three months ended
September 30, 2004 to the same period during 2005. Total first year whole life
premium increased $102,387 or 49% from 2004 to 2005. Total renewal year whole
life premiums increased $100,570 or 17% from the three months ended September
30, 2004 to the same period during 2005. Reinsurance premiums ceded increased
$193,693 from the three months ended September 30, 2004 to the same period in
2005.
Net investment income increased $273,294 or 78% from the nine months ended
September 30, 2004 to the same period during 2005 and increased $84,404 or 62%
from the three months ended September 30, 2004 to the same period in 2005.
During the first quarter of 2004 the Company sold a significant portion of its
bond portfolio in order to realize market gains and reinvest the resulting
proceeds using a new investment strategy. The new strategy is focused primarily
on matching maturities to the anticipated cash needs of the Company, but also
attempts to match the investment mix to others within the Company's industry
peer group. The proceeds from the sale were used to purchase short-term
securities with maturities ranging from 30 to 120 days. As these short term
securities matured, the proceeds were reinvested in conjunction with the new
investment strategy.
Net realized investment gain (loss) decreased $466,197 from the nine months
ended September 30, 2004 to the same
17
period during 2005. The decrease is attributable to the sale of a significant
portion of the Company's bond portfolio during the three months ended March 31,
2004. Gains totaling $464,363 were realized upon the sale of these bonds.
Benefits and expenses totaled $4,177,459 and $3,726,215 during the nine months
ended September 30, 2005 and 2004, respectively. Included in total benefits and
expenses were policy reserve increases of $890,182 and $698,352 during the nine
months ended September 30, 2005 and 2004, respectively. Benefits and expenses
totaled $1,237,083 and $1,294,218 during the three months ended September 30,
2005 and 2004, respectively. Included in total benefits and expenses were policy
reserve increases of $211,750 and $159,912 during three months ended September
30, 2005 and 2004, respectively. Life insurance reserves are actuarially
determined based on such factors as insured age, life expectancy, mortality and
interest assumptions. As more life insurance is written and existing policies
reach additional durations, policy reserves will continue to increase.
Policyholder surrender values increased $58,718 from $111,338 during the nine
months ended September 30, 2004 to $170,056 during the same period in 2005. This
increase is attributable to the maturation of policies.
Interest credited on annuities and premium deposits totaled $288,758 and
$249,093 for the nine months ended September 30, 2005 and 2004, respectively.
The increase of $39,665 or 16% is primarily a result of the increase in annuity
fund balances due to the introduction of several new annuity products in 2005.
Both interest credited on annuities and premium deposits have increased as a
result of the increase in the number of policies inforce. The average interest
credit rate on annuities and premium deposits has decreased from 5.7% to 4.7%
during the nine months ended September 30, 2004 and 2005, respectively. The
decrease is attributable to management's attempt to more effectively manage the
interest spread between the rate the Company earns on its investment portfolio
and the rate being credited to policyholder accounts combined with the
introduction of several new annuity products during 2005 which are deemed to be
shorter in duration and thus credit interest at a lesser rate than other
annuities which have historically been offered by the Company.
Death claims increased $127,629 or 58% from the nine months ended September 30,
2004 to the same period during 2005 and increased $58,138 or 71% from the three
months ended September 30, 2004 to the same period in 2005. The increase is
attributable to the increase in the number of policies inforce and the continued
maturation of those policies. Mortality experience by the Company to date is
within management's expectations.
Commission expense totaled $922,801 and $783,210 for the nine months ended
September 30, 2005 and 2004, respectively and $228,419 and $248,221 for the
three months ended September 30, 2005 and 2004, respectively. Commission expense
is based on a percentage of premium and is determined in the product design.
Additionally, higher percentage commissions are paid for first year business
than renewal year. The increase in commission expense during the nine months
ended September 30, 2005 is directly related to the increase in net premium
income during the same time period. Commission expense decreased during the
three months ended September 30, 2005 as a result of $196,053 in commission
allowances due from Wilton Re being netted against the balance of commission
expense. Commission allowances received on reinsured business essentially serve
as a reimbursement to the Company for acquisition costs incurred to write
business.
Salaries, wages and employee benefits increased from $821,240 during the nine
months ended September 30, 2004 to $929,819 during the same period in 2005 and
increased from $266,617 during the three months ended September 30, 2004 to
$296,449 during the same period in 2005. The increase during 2005 is primarily
attributable to an increase in employee headcount combined with increased
employee benefit expenses.
Other operating costs and expenses totaled $999,256 and $1,051,861 for the nine
months ended September 30, 2005 and 2004, respectively. The balance of other
operating costs and expenses during 2005 is comprised of gross costs totaling
$1,111,524, offset by expense allowances received from Wilton Re totaling
$112,268. Expense allowances received on reinsured business essentially serve as
a reimbursement to the Company for acquisition costs incurred to write business.
Significant components of the $59,663 increase in gross other operating costs
and expenses from 2004 to 2005 include the following. EDP (Electronic Data
Processing) costs increased $57,092 in conjunction with conversion process
consulting related to the Company's two life insurance administration systems.
Agency expenses increased $28,649 in conjunction with an agency incentive
contest. Printing costs increased $27,226 in conjunction with the development of
various new products released during 2005. Other increases realized during the
nine months ended September 30, 2005
18
included depreciation ($23,863), interest ($23,181) and building operations
($20,542). The aforementioned increases were offset by reductions in legal and
actuarial fees of $103,884 and $47,091, respectively. These decreases are
primarily attributable to the nonrecurrence of the professional fees and
expenses incurred in the 2004 period in support of the activities of a special
committee of the Board of Directors of the Company.
Other operating costs and expenses totaled $205,389 and $450,030 for the three
months ended September 30, 2005 and 2004, respectively. The balance of other
operating costs and expenses during 2005 is comprised of gross costs totaling
$317,657, offset by expense allowances received from Wilton Re totaling
$112,268. Significant components of the $132,373 decrease in gross other
operating costs and expenses from 2004 to 2005 include the following. Legal and
actuarial fees decreased $104,878 and $36,646, respectively. The aforementioned
decreases were offset by increases in agency expenses and EDP (Electronic Data
Processing) costs of $24,636 and $19,061, respectively.
As a result of the items noted above the Company incurred a net loss of $582,529
and $128,969 for the nine months ended September 30, 2005 and 2004,
respectively. The Company incurred a net loss of $160,115 and $274,930 for the
three months ended September 30, 2005 and 2004, respectively.
19
Liquidity and Capital Resources
During the quarter ended September 30, 2005, the Company maintained liquid
assets sufficient to meet operating demands, while continuing to utilize excess
liquidity to purchase various investments. Net cash provided by operating
activities during the nine months ended September 30, 2005 totaled $198,096 as
compared with $383,102 for the nine months ended September 30, 2004.
FLAC generally receives adequate cash flow from premium collections and
investment income to meet the obligations of its insurance operations. Insurance
policy liabilities are primarily long-term and generally are paid from future
cash flows. Cash collected from deposits on annuity contracts and policyholder
premium deposits are recorded as cash flows from financing activities. A
significant portion of the Company's invested assets are readily marketable and
highly liquid.
As of September 30, 2005, the Company had consolidated cash reserves and liquid
investments of approximately $14,189,418, as compared with $14,200,958 at
December 31, 2004. Of these amounts, cash reserves and liquid investments at
FLAC as of these dates were approximately $13,435,302 and $12,812,107,
respectively. However, due to insurance regulatory restrictions, these amounts
cannot necessarily be used to fund the cash needs of the parent company on a
stand-alone basis. As of these dates, cash reserves and liquid investments at
the parent company level were approximately $754,116 and $1,388,851,
respectively.
Management believes that these funds provide sufficient liquidity to fund the
basic operating needs at both the parent company and the FLAC levels for the
foreseeable future. However, if extraordinary legal or other expenses (such as
those incurred in 2003 and 2004 with respect to the proxy contest, Meyer
litigation, and special committee activities) are unexpectedly incurred at the
parent company level or if operating losses continue unabated at 2002 through
2004 levels, then the sufficiency of the parent company's operating cash
position could be jeopardized. In addition, although there can be no assurance
that extraordinary corporate activities will not continue, management believes
that steps recently taken by the Company reduce the likelihood that it will
continue to incur extraordinary expenses such as those incurred in 2003 and
2004.
In 2004, management adopted a five-year business development plan intended to
expand the Company's product lines and marketing efforts. However, the Company's
efforts to implement its new business plan and grow its business and policy base
through the implementation of the new product lines and marketing efforts would
be significantly enhanced if additional capital could be infused into FLAC's
insurance operations. Further, the parent company's capital position would be
strengthened against the risks noted in the preceding paragraph if more capital
were available at the parent company level. Therefore, management of the Company
intends to explore opportunities to provide this additional capital through the
sale of new equity securities or debt securities or through borrowed funds,
although there is no assurance that these efforts will be successful.
The Company's former President and Chief Executive Officer has made a demand on
the Company for the payment of $250,000 in severance benefits under his
employment agreement. The Company denies any such obligation. If these claims
are found to be meritorious, the Company's liquidity could be adversely
affected.
20
ITEM 3. CONTROLS AND PROCEDURES
The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. This information is accumulated and
communicated to Company management to allow timely decisions regarding
disclosure. The Company's Chief Executive Officer and Chief Financial Officer
conducted an evaluation of the Company's disclosure controls and procedures as
of the end of the period covered by this report. Based upon their evaluation of
those controls and procedures, the Chief Executive Officer and Chief Financial
Officer of the Company concluded that the Company's disclosure controls and
procedures are effective in alerting them on a timely basis to material
information required to be disclosed in the Company's periodic filings.
The Company made no significant changes in its internal controls over financial
reporting or in other factors that could significantly affect these controls
subsequent to the date of the evaluation of those controls by the Chief
Executive Officer and Chief Financial Officer.
21
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 12, 2003, the Company filed a petition in the District Court of
Shawnee County, Kansas asserting claims against Rickie D. Meyer ("Meyer"), the
Company's former President, arising, in part, out of Meyer's employment with the
Company. Among other things, the Company is seeking to recover expense
reimbursements previously paid to Meyer and Company funds allegedly
misappropriated by Meyer. The petition alleges that Meyer misappropriated funds
from the Company by fraudulently altering a check made payable to the Company.
The Company is also seeking to have Meyer reimburse it for the amount it paid
another insurance company in settlement of a claim. On August 8, 2003, the
Company settled a claim that it had breached various marketing agreements with
AF&L, a long-term care insurance company, and certain of its affiliates, through
the payment to AF&L of $150,000 plus $15,000 in attorney fees. The petition
asserts that Meyer entered into the marketing agreements despite knowing that
the Company could not perform on the financial requirements of the agreements
and without the knowledge, approval or authorization of the Company's Board of
Directors.
On December 12, 2003, Meyer filed an Answer and Counterclaim against the Company
asserting claims for defamation and breach of employment agreement. Meyer seeks
damges in excess of $75,000 plus interest and costs on his defamation claims.
Meyer seeks damages in the amount of $250,000 for an alleged breach of a
provision in his employment contract regarding severance pay; he seeks
additional damages in excess of $75,000 for an alleged breach of a provision in
the employment contract relating to payment of residual commissions.
On August 1, 2005, the District Court of Shawnee County, Kansas entered an
order, by agreement, submitting the claims to binding arbitration. The
arbitration commenced on November 7, 2005 and concluded on November 10, 2005.
The results of the arbitration have not been announced. No accrual of any loss
or gain that may result from the resolution of these matters has been reflected
in the financial statements. The amount of the ultimate loss or gain could
differ materially from the amounts noted above.
22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Index to Exhibits
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation of First American Capital Corporation
(Incorporated by reference from Exhibit 2.1 to the Registrant's
amended Form 10-SB filed August 13, 1999)
3.2 Bylaws of First American Capital Corporation, as amended
(Incorporated by reference from Exhibit 3.2 to the Registrant's
Form 8-K filed April 11, 2005)
4 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred
Stock and Qualifications, Limitations, and Restrictions Thereof of
6% Non-Cumulative, Convertible, Callable Preferred Stock
(Incorporated by reference from Exhibit 3 to the Registrant's
amended Form 10-SB filed August 13, 1999)
10.1 Form of Advisory Board Contract (Incorporated by reference from
Exhibit 6.2 to the Registrant's amended Form 10-SB filed August
13, 1999)
10.2 Service Agreement amended and restated effective January 1, 2002
between First American Capital Corporation and First Life America
Corporation (Incorporated by reference from Exhibit 10.3 to the
Registrant's Form 10-KSB filed March 31, 2003)
10.3 Automatic Umbrella and Bulk ADB Reinsurance Agreements effective
September 1, 1998 between First Life America Corporation and
Business Men's Assurance Company of America (Incorporated by
reference from Exhibit 6.8 to the Registrant's Form 10-SB filed
August 13, 1999)
10.4 Employment Agreement effective July 1, 2005 between First American
Capital Corporation and John F. Van Engelen (Incorporated by
reference from Exhibit 10.4 to the Registrant's Form 8-K filed
August 19, 2005)
10.5 Intercompany Tax Sharing Agreement dated December 31, 2003 between
First American Capital Corporation and First Life America
Corporation (Incorporated by reference from Exhibit 10.6 to the
Registrant's Form 10-KSB filed March 29, 2004)
10.6 Stock Repurchase Agreement between First American Capital
Corporation and Brooke Corporation dated March 2, 2005
(Incorporated by reference from Exhibit 10.7 to the Registrant's
Form 10-KSB filed March 31, 2005)
10.7 Warrant for 50,000 shares of First American Capital Corporation
common stock for $1.71per share issued to Brooke Corporation
effective March 2, 2005 (Incorporated by reference from Exhibit
10.8 to the Registrant's Form 10-KSB filed March 31, 2005)
10.8 Warrant for 50,000 shares of First American Capital Corporation
common stock for $3.35per share issued to Brooke Corporation
effective March 2, 2005 (Incorporated by reference from Exhibit
10.9 to the Registrant's Form 10-KSB filed March 31, 2005)
10.9 Warrant for 50,000 shares of First American Capital Corporation
common stock for $5.00per share issued to Brooke Corporation
effective March 2, 2005 (Incorporated by reference from Exhibit
10.10 to the Registrant's Form 10-KSB filed March 31, 2005)
23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
Exhibit No. Description
- ----------- -----------
10.10 Employment Agreement effective February 7, 2005 between First
American Capital Corporation and Richard H. Katz (Incorporated by
reference from Exhibit 10.11 to the Registrant's Form 8-K filed
April 22, 2005)
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. (*)
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. (*)
32.1 Certificate of Chief Executive Officer pursuant to Section 18
U.S.C. Section 1350 (*)
32.2 Certificate of Chief Financial Officer pursuant to Section 18
U.S.C. Section 1350 (*)
(*) Filed herewith
b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated August 19, 2005
announcing current developments.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRST AMERICAN CAPITAL CORPORATION
Date: 11/21/05 By: /s/ John F. Van Engelen
------------------------------- ------------------------------------
John F. Van Engelen
President & Chief Executive Officer
Date: 11/21/05 By: /s/ Patrick A. Tilghman
------------------------------- ------------------------------------
Patrick A. Tilghman
Treasurer & Chief Financial Officer
25
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation of First American Capital Corporation
(Incorporated by reference from Exhibit 2.1 to the Registrant's
amended Form 10-SB filed August 13, 1999)
3.2 Bylaws of First American Capital Corporation, as amended
(Incorporated by reference from Exhibit 3.2 to the Registrant's
Form 8-K filed April 11, 2005)
4 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred
Stock and Qualifications, Limitations, and Restrictions Thereof of
6% Non-Cumulative, Convertible, Callable Preferred Stock
(Incorporated by reference from Exhibit 3 to the Registrant's
amended Form 10-SB filed August 13, 1999)
10.1 Form of Advisory Board Contract (Incorporated by reference from
Exhibit 6.2 to the Registrant's amended Form 10-SB filed August
13, 1999)
10.2 Service Agreement amended and restated effective January 1, 2002
between First American Capital Corporation and First Life America
Corporation (Incorporated by reference from Exhibit 10.3 to the
Registrant's Form 10-KSB filed March 31, 2003)
10.3 Automatic Umbrella and Bulk ADB Reinsurance Agreements effective
September 1, 1998 between First Life America Corporation and
Business Men's Assurance Company of America (Incorporated by
reference from Exhibit 6.8 to the Registrant's Form 10-SB filed
August 13, 1999)
10.4 Employment Agreement effective July 1, 2005 between First American
Capital Corporation and John F. Van Engelen (Incorporated by
reference from Exhibit 10.4 to the Registrant's Form 8-K filed
August 19, 2005)
10.5 Intercompany Tax Sharing Agreement dated December 31, 2003 between
First American Capital Corporation and First Life America
Corporation (Incorporated by reference from Exhibit 10.6 to the
Registrant's Form 10-KSB filed March 29, 2004)
10.6 Stock Repurchase Agreement between First American Capital
Corporation and Brooke Corporation dated March 2, 2005
(Incorporated by reference from Exhibit 10.7 to the Registrant's
Form 10-KSB filed March 31, 2005)
10.7 Warrant for 50,000 shares of First American Capital Corporation
common stock for $1.71per share issued to Brooke Corporation
effective March 2, 2005 (Incorporated by reference from Exhibit
10.8 to the Registrant's Form 10-KSB filed March 31, 2005)
10.8 Warrant for 50,000 shares of First American Capital Corporation
common stock for $3.35per share issued to Brooke Corporation
effective March 2, 2005 (Incorporated by reference from Exhibit
10.9 to the Registrant's Form 10-KSB filed March 31, 2005)
10.9 Warrant for 50,000 shares of First American Capital Corporation
common stock for $5.00per share issued to Brooke Corporation
effective March 2, 2005 (Incorporated by reference from Exhibit
10.10 to the Registrant's Form 10-KSB filed March 31, 2005)
10.10 Employment Agreement effective February 7, 2005 between First
American Capital Corporation and Richard H. Katz (Incorporated by
reference from Exhibit 10.11 to the Registrant's Form 8-K filed
April 22, 2005)
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. (*)
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. (*)
32.1 Certificate of Chief Executive Officer pursuant to Section 18
U.S.C. Section 1350 (*)
32.2 Certificate of Chief Financial Officer pursuant to Section 18
U.S.C. Section 1350 (*)
(*) Filed herewith